GBPUSD news - page 19
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BOE’s Forbes Sees Wage Risk as Price Pressure From Pound Fades
Bank of England policy maker Kristin Forbes said the pound’s downward pressure on U.K. inflation may start fading and there’s a risk of a pickup in wage growth.
Forbes, a former White House adviser, made the comments in her first speech since joining the BOE in July. While she has voted to keep the key interest rate at a record-low 0.5 percent, her remarks chime with the view of the minority on the nine-member Monetary Policy Committee, who are pushing to tighten policy to ensure inflation remains under control.
With the U.K. poised for the fastest growth in the Group of Seven this year, the debate on when to lift interest rates is intensifying. The pound’s 7 percent appreciation in the past year has helped keep consumer-price growth below the BOE’s 2 percent target, adding weight to the case for maintaining emergency stimulus for now.
“Sterling’s past moves have reduced the risk of inflation increasing sharply, despite the strong growth in employment and the overall economy,” Forbes, 44, said in London yesterday. The effect on price growth “will peak at the end of 2014 and then begin to fade.”
Two of the central bank’s MPC have voted to increase the key rate to 0.75 percent for the past two months. With the panel due to hold its next monthly meeting on Oct. 7-8, Forbes said it must be mindful of the potential risks to the target.
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BoE Seeks More Powers To Control Mortgage Lending
The Bank of England sought more powers to regulate mortgage lending in order to protect property market from overheating and avert risks to financial stability.
The Financial Policy Committee of BoE on Thursday requested powers to limit mortgage lending for both owner-occupied and buy-to-let property.
The panel asked for power to set a limit on loan-to-value ratio and overall household debt relative to income, including interest rate coverage ratio in respect of buy-to-let lending.
The regulator said, taken together, these instruments are necessary, and should be sufficient, to tackle risks to financial stability that could emerge from the housing market in the future.
Further, in a letter to Chancellor, Governor Mark Carney said the Help to Buy scheme does not pose material risks to financial stability. The scheme does not appear to have been a material driver of house price growth, he said.
In June, Chancellor said the treasury is willing to grant additional powers to FPC to guard against risks from the housing market.
Thereafter, the FPC recommended that mortgage lenders should limit the proportion of mortgages at loan to income multiples of 4.5 and above to no more than 15 percent of their new mortgages.
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Early BOE Tightening? Don’t Look for Signs in Gilts
If Bank of England policy makers are contemplating an early interest-rate increase, there are few signs of concern in the U.K. government bond market.
For all the data showing the U.K. economy strengthening and stagnation in the euro area, gilts returned 3.9 percent in the three months through September, their best quarterly performance since 2011. They beat German bonds, which gained 2.3 percent, for the first time in a year and outpaced government securities from Spain, Italy and the U.S.
The debate over when the BOE will raise borrowing costs largely comes down to wages, as a minority on the Monetary Policy Committee begin to challenge Governor Mark Carney’s argument that a lack of pay growth shows there is enough spare capacity to leave the benchmark rate at a record low. Economists predict a quarter-point increase to 0.75 percent in the first quarter, with the possibility of a move as early as next month. Investors are betting no action will be taken until July, Sonia forward contracts show.
“Gilts had a fantastic quarter and the moral of the story is that people tend to be wrong in forecasting rate increases, as has been the case in the past five years,” said Robin Marshall, London-based director of fixed income at Smith & Williamson Investment Management, which manages the equivalent of $24 billion. “We remain constructive on gilts. The risk is skewed toward the Bank of England doing less” than markets are pricing in, he said.
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GBP/USD drops to 3-1/2 week lows on U.K. PMI
The pound dropped to three-and-a-half week lows against the U.S. dollar on Friday, weighed by downbeat service sector data from the U.K., while demand for the greenback strengthened ahead of a highly anticipated report on U.S. employment.
GBP/USD hit 1.6088 during European morning trade, the pair's lowest since September 10; the pair subsequently consolidated at 1.6085, declining 0.36%.
Cable was likely to find support at 1.6050, the low of September 10 and resistance at 1.6251, Thursday's high.
Markit research group said the U.K. services purchasing managers' index slipped to 58.7 in September from a reading of 60.5 the previous month. Analysts had expected the index to tick down to 59.1 last month.
Meanwhile, the dollar remained supported the U.S. Department of Labor reported on Thursday that the number of individuals filing for initial jobless benefits in the week ending September 27 decreased by 8,000 to 287,000 from the previous week’s revised total of 295,000.
Investors were looking ahead the U.S. nonfarm payrolls report due later in the day, which was expected to show that the economy added more than 200,000 jobs for a sixth successive month in August.
Sterling was fractionally lower against the euro, with EUR/GBP adding 0.08% to 0.7853.
The euro came under pressure after Markit said the euro zone services PMI ticked down to 52.4 in September from 52.8 the previous month, confounding expectations for the index to remain unchanged.
Markit also reported that Germany's services PMI rose to 55.7 last month from a reading of 55.4 in August, while France's services PMI fell to 48.4 in September from 49.4 in August.
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Pound Drops to 10-Month Low on U.K. Services Growth, U.S. Jobs
The pound weakened for an eighth day versus the dollar, tumbling to the lowest level in 10 months, after a report showed U.K. services growth cooled last month by more than analysts forecast.
Sterling dropped the most in three weeks as the decline in Markit Economics’s Purchasing Managers’ Index of services added to signs that growth in the U.K. is losing momentum. The pound also weakened as the dollar rallied after a U.S. report that showed improvement in the labor market. Britain’s government bonds fell for the first time in five days.
“The pound is being sold today, suggesting the longer-term dollar bull trend is slowly returning to the foreign-exchange market,” said Neil Jones, head of hedge-fund sales at Mizuho Bank Ltd. in London “Pound-dollar was sold after the U.K. PMI data.”
The pound declined 0.8 percent to $1.6022 at 1:34 p.m. London time, the biggest drop since Sept. 8 and was poised for the longest losing run since July. It touched $1.6009, the weakest level since November. The U.K. currency strengthened 0.2 percent to 78.31 pence per euro.
Markit’s services gauge fell to 58.7 from a 10-month high of 60.5 in August. Economists had forecast a decline to 59, based on the median estimate in a Bloomberg News survey. Markit said the gauge, along with its factory and construction surveys, indicates the economy grew 0.8 percent in the third quarter, down from 0.9 percent in the second.
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GBP/USD forecast for the week of October 6, 2014
The GBP/USD pair initially tried to rally during the course of the week, but then fell hard. We ultimately broke down below the bottom of the 1.60 handle, and as a result it looks like we are testing serious support levels right now. The British pound continues to suffer overall, and we believe that if we can break down below the 1.58 level, we should then head to the 1.55 handle next. Any rally at this point time will be treated with suspicion, and we believe the sellers will get involved when those happen.
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GBP/USD weekly outlook: October 6 - 10
The pound slumped to 11-month lows against the dollar on Friday after data showed that the U.S. economy added more jobs than expected last month, while dovish remarks by a Bank of England official also weighed.
GBP/USD was down 1.08% to 1.5970 in late trade. For the week, the pair lost 1.66%.
The Labor Department reported Friday that the U.S. economy added 248,000 jobs in September, well ahead of forecasts for jobs growth of 215,000. The unemployment rate ticked down to 5.9%, the lowest level since July 2008.
The upbeat jobs report was tempered by slow growth in wages. Average hourly earnings rose by 2.0% year-over-year, slowing slightly from August.
Despite this, the employment data added to the view that the strengthening economic recovery may prompt the Federal Reserve to raise interest rates sooner. The central bank is on track to end its asset purchase program later this month.
The US Dollar Index, which tracks the performance of the greenback against a basket of six major currencies, was up 1.23% to 86.79 in late trade, a high last seen in June 2010, capping its twelfth consecutive weekly gain. The twelve-week rally is the longest since the index was created in 1971.
Sterling came under pressure after Kristin Forbes, an external member of the BoE’s monetary policy committee, warned in a speech on Friday that the appreciation of the pound at the start of this year has acted as a drag on economic growth.
Also Friday, data showed that U.K. services sector growth eased slightly in September, indicating that the economic recovery may be moderating.
The U.K. services purchasing managers index ticked down to a three month low of 58.7 from 60.5 in August.
The report came after data on Wednesday showed that output in the U.K. manufacturing sector slowed to a 17 month low in September.
The data was seen as increasing the likelihood that the BoE will leave rates on hold until next year.
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GBP/USD: Trading the British Manufacturing Production
British Manufacturing Production, a key indicator, provides analysts and traders with a snapshot of the health of the UK manufacturing sector. A reading which is higher than the market forecast is bullish for the pound.
Here are all the details, and 5 possible outcomes for GBP/USD.
Published on Tuesday at 8:30 GMT.
Indicator Background
The British Manufacturing Production indicator measures the changes in output produced by manufacturers and in the turning of inventory. Manufacturing is a critical sector of the economy, and strong readings are an indication of economic growth.
The indicator has been steady but not all that strong, with the past two readings coming in at 0.3%. Little change is expected in the upcoming release, with an estimate of 0.2%.
Sentiments and levels
The US dollar has surged higher against its major rivals as US numbers continue to improve. As well, market focus is shifting towards the timetable of an interest rate, as QE winds up. Meanwhile, UK numbers have softened and the anticipated rate hike may take place later rather than sooner. So, the overall sentiment is bearish on GBP/USD towards this release.
Technical levels, from top to bottom: 1.6250, 1.6131, 1.6006, 1.5909, 1.5746 and 1.5422.
5 Scenarios
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UK manufacturing production slightly disappoints in August
UK manufacturing production rises 0.1% and industrial production stays flat, slightly below expectations. Year over year, manufacturing rose 3.9% and industrial output 2.5%.
Manufacturing output in the UK was expected to rise by 0.2% in August, after 0.3% in July (before revisions). The wider industrial output carried expectations for a rise of 0.2% after 0.5% beforehand.
GBP/USD continued its recovery, riding on USD weakness and was just below 1.16080 towards the publication.
At the same time, the Bank of England’s Credit Conditions Survey was released.
The manufacturing sector has been one of the weaker links in the UK economy of late. Last week’s PMI showed a super strong construction sector, an OK services sector and a hardly growing manufacturing one.
Later today, we will get a fresh GDP estimate from NESR. For the three months ending in August, growth stood on 0.6% according to this institution. The BOE meets later this week for its monthly rate decision, and a change in policy is probably off the agenda.
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Pound Gains Most in One Week Versus Euro as Output Data Diverge
The pound rose the most in a week versus the euro as U.K. manufacturing grew for a third month in August, while German industrial output shrank, adding to signs Britain’s recovery is outpacing that in Europe.
Sterling was little changed against the dollar after posting its biggest advance in two weeks yesterday. The U.K. currency appreciated from near a two-week low versus the euro as German industrial production fell the most since 2009 in August. U.K. government bonds rose for a second day as the Debt Management Office sold 30-year gilts at the lowest yield since September 2012.
“The divergence between the U.K. and the euro zone is still there, has been the dominant story for a while and it will be for some time to come,” said Jane Foley, senior foreign-exchange strategist at Rabobank International in London. “The slower data has had an impact, but at the same time the market has been getting more excited about quantitative easing from the European Central Bank, so that’s why that divergence story is still there.”
The pound appreciated 0.2 percent to 78.56 pence per euro as of 4:31 p.m. London time, set for the biggest advance since Sept. 30. It reached 78.74 pence yesterday, the weakest level since Sept. 23. Sterling was at $1.6075 after rising 0.7 percent yesterday, the most since Sept. 18.
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