Sterling is lower after an unexpected jump in UK unemployment claims while the unemployment rate surprisingly declined. As expected, meeting minutes from the Bank of England’s latest policy meeting showed the MPC is determined to hold interest rates at ultra-low levels in the near term.
A surprise jump in unemployment claims sent sterling lower versus both the dollar and the euro. New jobless claims rose by 12,400. The negative tone of the report was underscored as the previous month’s jobless claims were revised lower to 6,400 from 700. Economists had forecasted new claims of only 400. Despite the statistics office claims of a one off adjustment in the way the report is calculated may account for the increase in jobless claims, the negative data highlights the slow recovery the UK economy faces.
The unemployment rate surprisingly ticked lower to 7.9% from 7.8% on expectations of an increase to 7.9%. It is a bright spot on an otherwise bleak UK unemployment outlook.
At the same time the BoE released its last policy meeting minutes which showed the Monetary Policy Committee is still holding firm to its ultra-loose monetary policy. The MPC maintained its 6 to 3 vote in favor of holding UK interest rates at their present level of 0.5%. Earlier in the week BoE Governor Mervyn King announced that interest rates could begin to rise in Q3 but judging from the short sterling contract market players anticipate an interest rate increase closer to November. This is despite rising inflationary pressures in the UK. Yesterday inflation numbers were released and showed a 4.5% increase from the previous year.
Following the release of the unemployment claims report sterling traded lower versus both the dollar and the euro. The GBP/USD fell back to 1.6177 from 1.6268. A breach of 1.6150 would target 1.6050 from the rising trend line off of the May lows. Versus the euro the pound has lost all of yesterday’s gains booked after the inflationary data was released. The EUR/GBP traded as high as 0.8812, a level that coincides with the 50-day moving average. A close above this resistance would target 0.8940 below the previous trend line from the February low.
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