GBP/USD snaps a five-day drop following Mark Carney comments

The sterling snapped a five-day drop against the US dollar on Monday, after Mark Carney, Governor of Bank of England pledged the central bank will help the UK economy in its struggle to recover.

GBP/USD hit a session high at 1.6679 at 10:00 GMT, after which consolidation followed at 1.6661, adding 0.28% for the day. Support was likely to be received at February 12th low, 1.6426, while resistance was to be met at February 21st high, 1.6725.

Mark Carney reiterated that a new phase of forward guidance of UK interest rates is a clear evidence that central bank officials will support the economic recovery of the country.

“We will not take risks with the recovery,” Carney said in an interview with Australian newspapers, including the Australian Financial Review, cited by Bloomberg. “We are going to set the path of monetary policy in a way that ensures that we see sustainable growth in jobs and incomes and in spending.”

The latest jobless report by the UK Office for National Statistics (ONS) released last week, showed that the nation’s unemployment rate increased to 7.2%, from 7.1% in the three months through November. Analysts had expected the measure to remain steady at November’s reading, which was also the lowest since May 2009.

A separate report by the ONS revealed the number of people filing for jobless benefits in the UK fell by 27 600 people in January, exceeding analysts’ expectations for a decline of 20 000. The government agency also revised up its initial estimates, saying jobless claims fell by 27 700 in December from a previously reported drop of 24 000.

According to BoE’s minutes from its February meeting released last week, central bank’s policy makers voted unanimously to keep interest rates unchanged as they prepared for a new phase of forward guidance.

In its quarterly inflation report released on February 12, the central bank revised its forward guidance, replacing the 7% unemployment threshold with a range of economic indicators, including spare capacity.

BoE said the unemployment rate will probably fall below 7% in the first quarter of this year, but at the same time underscored there was “scope to absorb spare capacity further before raising bank rate” from the current record-low 0.5%. BoE estimated an output gap between 1% and 1.5% of UK gross domestic product.

The central bank also raised its forecast for the UK economic growth in 2014 to 3.4% from 2.8% projected in November and predicted the first increase of interest rates will come in April 2015. Bank of England projected inflation of 1.9% in the next three years, below the central bank target of 2%.

Data scheduled to be released on Wednesday, may show the Gross Domestic Product grew at a slower pace in the fourth quarter. According to the median expert forecast, UK Gross Domestic Product rose 0.7% in the fourth quarter, after expanding 0.8% in the three months through September.

The sterling has advanced 13% in the past year, being the best performer of 10-developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes, while the US dollar rose mere 1.7%.

Meanwhile, in the United States, the number of existing homes sold dropped considerably in January, which implied that housing market was still experiencing the adverse influence of both high mortgage rates and severe weather conditions. According to data by the National Association of Realtor’s (NAR) released on Friday, existing home sales in the country decreased 5.1% in January compared to a month ago to reach the annualized 4.62 million units. The indicator recorded a fifth drop in the past six months, while at the same time home sales reached their lowest level in 18 months.

Experts had anticipated that existing home sales will fall less, to 4.68 million units in January, following 4.87 million homes sold in December. Analysts suggested that the combination of weaker supply and stronger demand in nation’s housing sector led to a jump in home values.

Elsewhere, AUD/USD touched a session low at 0.8938 at 2:10 GMT, after which consolidation followed at 0.8969, down 0.10% for the day. Last week the pair fell 0.63%, or the first loss since the week ended on January 24th. Support was likely to be found at February 13th low, 0.8928, while resistance was to be encountered at February 21st high, 0.9015.