The sterling reached its highest point in seven months against the US dollar on Wednesday, following a report to show that the number of jobless claims in the United Kingdom unexpectedly dropped in August, giving strength to expectations that Bank of England (BoE) will raise the benchmark interest rate sooner than anticipated.
GBP/USD hit a session high at 1.5825 at 8:30 GMT, also the pairs highest point since February 8th, after which consolidation followed at 1.5786, gaining 0.32% for the day. Support was likely to be found at current session low, 1.5717, while resistance was to be encountered at February 8th high, 1.5860.
The pound found support after the International Labour Organization (ILO) reported that unemployment rate in the United Kingdom decreased to 7.7% during the period May-July from 7.8% during the preceding three-month period. The number of unemployed people decreased by 24 000 during May-July period. The claimant count rate in the country also registered a drop to 4.2% in August, marking the lowest level since January 2009, from 4.3% in July. The number of jobless claims declined by 32 600 in August compared to July, outstripping preliminary estimates of a lesser drop, by 21 000, as the number of claims in July was revised to a drop by 36 300 from a drop by 29 200 previously. Unemployment rate in the UK approached the targeted level by Bank of England, at which the bank could begin tightening its monetary policy. The above mentioned drop in the number of unemployed people in the country might urge the central bank to raise the benchmark interest rate sooner than it had previously indicated. In August BoE pledged to maintain interest rates on hold at current record low level until the unemployment rate plunges below 7%.
“The pound is likely to maintain its recent momentum in the near term,” said Peter Kinsella, a senior currency strategist at Commerzbank AG in London, cited by Bloomberg. “It will probably take another two years before the unemployment rate drops to the 7 percent target. Still, a decline in jobless claims will no doubt help in terms of sentiment.”
In addition, the yield on UK benchmark 10-year gilts rose two basis points, or 0.02 percentage point, to reach 3.04%, the media also imparted.
Meanwhile, the pound was higher against the euro, with EUR/GBP cross losing 0.24% on a daily basis to trade at 0.8415 at 9:28 GMT. In the common currency bloc, the head of the European Commission José Manuel Barroso said in a speech on Wednesday that recovery in the region was in sight, as he reiterated his call for implementing reforms in the banking sector. The sterling was gaining against the Japanese yen as well, with GBP/JPY pair advancing 0.11% on Wednesday to trade at 158.16 at 9:30 GMT.
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