Forex Market: EUR/GBP touches daily lows following upbeat UK labor market data

The euro dropped to daily lows against the British pound, after data showed the number of jobless claims in the UK fell more than projected, while the claimant count decreased in February.

EUR/GBP touched a session low at 0.8361 at 09:32 GMT, after which consolidation followed at 0.8371, losing 0.32% for the day. Support was likely to be found at March 17th low, 0.8342, while resistance was to be met at March 18th high, 0.8400, also the pairs highest since December 18.

The UK Office for National Statistics reported today that the number of people filing for jobless benefits in the UK fell by 34 600 people last month, compared to analysts’ expectations for a decline of 25 000. The government agency also revised its initial estimates, saying jobless claims fell by 33 900 in January from a previously reported drop of 27 600.

The report also showed the UK unemployment rate, measured by International Labour Organization methods, was 7.2% in the three months through January, the same as in the final quarter of 2013 and in line with analysts expectations.

The claimant count rate diminished to 3.5% last month in line with expectations from 3.6% in January.

“The underlying trends remain generally solid, though there were some signs of moderation in the latest data,” Ross Walker, an economist at Royal Bank of Scotland Group Plc in London, said in a Bloomberg interview before the data was released. “We regard this moderation primarily as a normalization versus what appeared to be unsustainably strong labour market activity at the latter part of 2013.”

According to BoE’s minutes from its March meeting released today, central bank’s policy makers voted unanimously to keep interest rates unchanged as they said the sterlings strength is putting downward pressure on inflation and there are increasing risks of further gains as the economy recovers.

A rapid drop in the jobless rate last year forced the Bank of England to broaden its focus from the 7% threshold for considering a rate increase. In its February quarterly inflation report, the central bank revised its forward guidance, replacing the 7% unemployment threshold with a range of economic indicators, including a range of measures of spare capacity.

Meanwhile, the 18-nation common currency continued to be pressured after economic sentiment data for Germany and for the euro zone as a whole came in well-below expectations.

Economic sentiment in the largest euro area economy, Germany, deteriorated sharply, reaching a 7-month low in March, data by the ZEW Centre for Economic Research showed yesterday.

In addition, the euro area economic sentiment also registered a decline, coming in at 61.5 in March, down from 68.5 in the previous month and as analysts projected the index will decline to 67.3 this month.