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Pound Resilience Shows House-Price Drop No Barrier to Rate Bets
The pound was about 0.4 percent from a 22-month high versus the euro amid bets a cooling housing market won’t be enough to prevent the Bank of England from being the first major central bank to increase interest rates.
Sterling was little changed versus the dollar after Rightmove Plc said house prices in England and Wales fell for the first time this year in July. The pound has been the best-performer in the past 12 months among a basket of 10 major currencies as a strengthening economy spurred bets central-bank officials led by Governor Mark Carney will increase borrowing costs in the first half of 2015. U.K. government bonds were little changed before a sale of 10-year debt tomorrow.
“Little has changed in terms of the structural direction and there should be further pound strength ahead,” said Neil Jones, head of hedge-fund sales at Mizuho Bank Ltd. in London. “There is some profit taking on long sterling positions, some of the housing data may be coming in a little bit on the lighter side given the previous performance. But there’s more to come, there’s an underlying bid to the pound.”
A long position is a bet an asset’s value will increase.
Sterling was at 79.24 pence per euro at 5 p.m. London time after touching 78.89 on July 17, the strongest level since September 2012. The pound was little changed at $1.7066. It appreciated to $1.7192 last week, the highest since October 2008.
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U.K. Public Sector Net Borrowing 9.51B vs. 9.20B forecast
U.K. public sector borrowing fell less-than-expected in the last quarter, official data showed on Tuesday.
In a report, National Statistics Office said that U.K. Public Sector Net Borrowing fell to a seasonally adjusted 9.51B, from 11.86B in the preceding quarter whose figure was revised up from 11.48B.
Analysts had expected U.K. Public Sector Net Borrowing to fall to 9.20B in the last quarter.
GBP/USD slides as U.S. inflation report firms dollar
The pound edged lower against the dollar on Tuesday after U.S. inflation data met expectations and while housing numbers beat forecasts, confirming market sentiments that the Federal Reserve remains on track to wind down stimulus programs this year and raise interest rates the next.
In U.S. trading on Tuesday, GBP/USD was trading down 0.13% at 1.7054, up from a session low of 1.7042 and off a high of 1.7084.
Cable was likely to find support at 1.7037, Friday's low, and resistance at 1.7100, Monday's high.
Geopolitical concerns in the Ukraine and Israel briefly took a back seat to U.S. data and firmed the greenback over the pound.
The Labor Department reported earlier that the U.S. consumer price index rose 2.1% in June, unchanged from the previous month and in line with forecasts, which drew applause for the dollar.
On a month-over-month basis, U.S. consumer prices were up 0.3% after a 0.4% increase in May, also in line with expectations.
Figures that met but did not exceed Wall Street expectations bolstered the dollar, as un upside surprise could have rattled nerves and sent many investors rethinking what the Federal Reserve will do with monetary policy.
Market talk points to the Fed ending its bond-buying program around October and then raising interest rates some time in 2015, though the length of time that will pass between those two policy moves remains up in the air.
June's core inflation rate, which excludes food and energy costs, rose by just 0.1% from May and 1.9% on year, slightly below market calls for 0.2% and 2.0% readings, respectively, which illustrated how gasoline was driving the CPI up, though markets viewed the numbers as fundamentally healthy anyway.
Elsewhere, the National Association of Realtors reported earlier that existing U.S. home sales rose 2.6% to 5.04 million units in June from 4.91 million in May, beating market forecasts for a 2.0% rise to 4.97 million units.
Meanwhile across the Atlantic Ocean, the Confederation of British Industry said that its index for industrial order expectations declined to 2 this month from 11 in June, missing expectations for a fall to 8.
Elsewhere, sterling was up against the euro, with EUR/GBP down 0.30% at 0.7896, and down slightly against the yen, with GBP/JPY down 0.01% at 173.13.
On Tuesday, the Bank of England is to publish the minutes of its latest policy meeting, which contain valuable insights into economic conditions from the bank’s perspective. Later in the day, BoE Governor Mark Carney is to speak.
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BoE Minutes And Eurozone Consumer Sentiment On Tap For Wednesday
The minutes of the Bank of England's July monetary policy announcement, eurozone consumer sentiment report and French business confidence figures are among the economic data scheduled for release on Wednesday.
At 4:30 am ET, the Bank of England will release minutes of its July Monetary Policy Committee meeting.
At 2:45 am ET, French Statistical Institute INSEE is due to release its business confidence index for France. The index is expected to remain stable at 98 in July.
At 3:30 am ET, Statistics Netherlands is scheduled to release its consumer spending figures. Consumer spending is estimated to fall 1.4 percent year-over-year in May after the 0.1 percent decline in April.
The Central Statistical Office of Poland is expected to release its retail sales and unemployment reports at 4 am ET. Retail sales are estimated to rise 4 percent year-over-year in June following the 3.8 percent increase in May. The jobless rate is expected to decrease to 12.1 percent in June from 12.5 percent in May.
At 4:30 am ET, the British Bankers Association will release its mortgage approvals data for the U.K. the number of mortgage approvals are expected to decline to 41,375 in June from 41,757 in May.
The Croatian Bureau of Statistics is due to release its unemployment report for June at 5 am ET. In May, the jobless rate was 19.6 percent.
At 6 am ET, the Confederation of British Industry is scheduled to release results of its distributive trade survey for the U.K. The distributive trade balance is expected to increase to 15 percent in July from 4 percent in June.
At 10 am ET, Eurostat is expected to release the preliminary results of its consumer sentiment for the eurozone. The consumer confidence index is estimated to remain at-7.5 in July, the same as in June.
Speeches
At 7:45 am ET, Bank of England's Mark Carney is scheduled to participate in a debate on the Global Economy at the Glasgow University. Leader of the U.K. House of Commons William Hague will take part in a Panel discussion in Brussels at 12 pm ET. Marek Belka, president of Narodowy Bank Polski, is due to speak to the Polish Parliament.
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U.K. CBI realized sales rise to 3-month high in July
U.K. retail sale volumes rose to a three-month high in July, fuelling optimism over the health of the country’s economy, industry data showed on Wednesday.
In a report, the Confederation of British Industry said the result of its index of U.K. retailers improved by 17.0 points to a reading of 21.0 this month from 4.0 in June. Analysts had expected the index to increase by 12.0 points to 16.0 in July.
On the index, a reading above 0.0 indicates higher sales volume, below indicates lower.
Retailers expect sales volumes to grow at an even stronger pace next month and stocks in relation to expected demand rose, most likely in anticipation of this stronger sales growth.
Barry Williams, Chair of the CBI Distributive Trades Survey Panel said, “As the temperature began to rise, it seems so did sales volumes. Almost all sectors saw growth, with grocers and clothing stores telling us they performed particularly well as people bought barbeque supplies and summer outfits.”
Following the release of that data, the pound held on to modest losses against the U.S. dollar, with GBP/USD shedding 0.12% to trade at 1.7045.
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GBP/USD trims losses but remains under pressure
The pound trimmed losses against the U.S. dollar on Wednesday, but remained near three-week lows as events in Ukraine and the Gaza Strip continued to dominate investors' attention.
GBP/USD pulled away from 1.7024, the pair's lowest since June 30to hit 1.7050 during U.S. morning trade, still down 0.09%.
Cable was likely to find support at 1.7009, the low of June 30 and resistance at 1.7100, the high of July 21.
Investors remained cautious after the European Union threatened Russia on Tuesday with harsher sanctions over Ukraine, while fighting in the Gaza Strip continued.
Earlier Wednesday, the minutes of the Bank of England’s June meeting showed that the decision on whether to raise interest rates has become more balanced for some policymakers in recent months than earlier in the year.
However, the minutes also said weakness in wage growth is becoming more “striking”, particularly given that the annual rate of inflation rose to 1.9% in June. Weak wage growth in the face of strong employment growth made it difficult to gauge the degree of slack in the labor market, the minutes said.
Some members of the monetary policy committee were concerned that raising rates too early could destabilize the recovery, given recent signs of weakness in the global economic recovery.
Separately, a report showed that mortgage approvals in the U.K. rose broadly in line with expectations in June.
The British Banker's Association reported that the number of new mortgages approved increased to 43,300 last month from May’s revised total of 41,900, just below forecasts of 43,400.
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BoE's Carney Sees Need For Rate Rise As Economy Returns To Normal
Bank of England Governor Mark Carney said on Wednesday that interest rate will have to start rising to maintain price stability as the economy normalizes.
"As the economy normalizes, Bank Rate will need to start to rise in order to achieve the inflation target," Carney said in a speech in Glasgow, Scotland.
"But the MPC has no pre-set course and the timing of any increases in interest rates will be determined by the data."
Policymakers are studying how the strengthening economic recovery and the mixed signals over the degree of slack in the labor market will impact inflation, the central bank chief said.
"The Monetary Policy Committee (MPC) is balancing the implications for inflation of hard evidence of sustained economic momentum against conflicting signals over the degree of slack in the labor market," Carney said.
The minutes of the July meeting, released earlier today, revealed that policymakers unanimously decided to maintain the key interest rate and quantitative easing, but signaled the possibility of a rate hike late this year as growth became more established.
Carney pointed out that the spare capacity is being consumed more rapid than the bank had expected even as wages indicate more labor supply than had previously thought.
The Monetary Policy Committee is trying to determine to what extent these will translate into real wage growth and feed into price pressures, he said. The bank's view will be revealed in the August Inflation report, he added.
"The MPC is supporting investment through clear guidance that it expects increases in Bank Rate, once they begin, to be gradual and limited," Carney said. "This is in part because the headwinds facing the economy are likely to take some time to die down."
The headwinds include public balance sheet repair, a highly indebted private sector, as well as the drag from strong currency and the weak demand from main export markets, he explained.
Further, Carney said even when spare capacity is used up, the Bank Rate will need to be remain materially lower to keep the economy operating at its potential and inflation at its target.
Continued imbalances between global saving and investment as well as lower rates of global productivity growth could keep UK rates lower, he said.
"The MPC can also be expected to accommodate with lower risk-free rates the higher spreads that are likely to result from new regulatory requirements," Carney said.
Drawing attention to the risks of a prolonged period of record low interest rates, Carney said the biggest risks are linked to the housing market.
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UK retail sales strongest in 10 years in second quarter, June +0.1 percent month-on-m
British retail sales volumes in the second quarter were the strongest in 10 years, although they stagnated last month, official data showed on Thursday.
Retail sales volumes rose 1.6 percent between April and June compared with the previous three months, the strongest calendar quarter since early 2004, according to the Office for National Statistics.
But they rose just 0.1 percent in June from May and by 3.6 percent compared with the same month a year ago.
That was slightly weaker than economists' forecasts in a Reuters poll for increases of 0.3 percent and 3.9 percent.
Second-quarter sales were boosted by a 1.0 month-on-month jump in April, which more than offset a fall in May.
Comparing the second quarter with the same period last year, sales were up 4.5 percent, the strongest calendar quarter since the end of 2004, the ONS said.
Britain's consumers have been the main driver of the country's economic recovery which began last year, helped by low levels of inflation - despite a surprise surge last month - that has eased the pressure on their spending power.
Wage growth, however, remains very weak.
Prices in stores were flat last month, the first time they have not fallen since January.
An ONS official said an annual 2.0 percent increase in prices for the textiles, clothing and footwear sector was unusual given that retailers normally cut prices during the month.
The last time clothing prices rose in the month of June was in 2007.
A survey from the Confederation of British Industry on Wednesday showed British annual retail sales growth quickened in July and that expectations for August also picked up.
Retail sales account for just under 6 percent of British gross domestic product.
Economists expect data on Friday to show GDP grew by 0.8 percent in the second quarter, unchanged from the first three months of the year.
However, they also see a risk of a lower growth rate after industrial output figures were weaker than expected in May.
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U.K. Retail Sales Rise Marginally In June
U.K. retail sales increased marginally in June as food sales recovered from the prior month, data from the Office for National Statistics showed Thursday.
Retail sales including auto fuel rose 0.1 percent in June from May, when it dropped 0.5 percent. Sales were expected to grow by 0.3 percent.
However, excluding auto fuel, sales were down by 0.1 percent. Economists had expected sales to rise 0.3 percent after falling 0.5 percent in May.
Predominantly food store sales rose 0.3 percent, while non-food store sales fell 0.7 percent in June.
On a yearly basis, growth in retail sales volume including auto fuel, slowed slightly to 3.6 percent from 3.7 percent in May. Excluding auto fuel, sales growth fell to 4 percent from 4.5 percent.
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UK House Prices Rise At Slower Rate In July
U.K. house prices rose at the slowest rate in more than a year in July, the results of a survey by Hometrack showed Friday.
House prices increased 0.1 percent month-on-month in July, which was slower than the 0.3 rise in June.
The results of a survey by Markit Economics and Knight Frank released last week showed that current house price sentiment rose at a slower pace in July.
However, future house price sentiment had increased at a slightly faster rate in July, indicating that a more modest rise in prices is expected.