Sterling slips after UK jobless rate climbs

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PoundSterling Reuters. Wads of British pound sterling banknotes.

London - Sterling fell against the dollar and the euro on Wednesday after a report showed the UK jobless rate rose in the three months to December, bolstering a view that the Bank of England may keep monetary policy accommodative for longer.

Together with a drop in Britain's annual inflation rate below the central bank's target of 2 percent, Wednesday's data should ease pressure on the BoE to raise interest rates sooner rather than later.

The BoE expects to keep rates near record lows at least until the second quarter of next year, when it projects the economy will be firing all cylinders. But some in the markets are betting the first move will come much earlier.

The rise in the jobless rate to 7.2 percent was above forecasts for a 7.1 percent reading.

Sterling weakened to a session low of $1.6662 after the UK data was released from around $1.6722 beforehand.

The euro was flat on the day, having risen to a session high of 82.555 pence after the data was released from 82.25 pence before.

The euro fell to a one-year low against the pound on Monday, then posted its biggest daily gain in two weeks on Tuesday.

Traders said losses in the pound should be limited, because the jobs report and data about wage growth overall was not too bad.

“The print was only 0.1 percentage point away from market forecasts and the claimant count was actually better than expectations,” said Alex Edwards, head of corporate desk at UKForex.

“As a result, we expect support to continue to come in at $1.66 in the near-term.”

Sterling has been buoyant since the BoE raised its forecast last week for economic growth this year to 3.4 percent from 2.8 percent.

It also said in the inflation report that market pricing that assumed the first tightening of policy in five years would come in the second quarter of next year were consistent with keeping inflation on target.

Earlier, minutes from the BoE's latest policy meeting showed policymakers had no disagreement about major changes to the central bank's forward-guidance policy.

Last week, the BoE said it would look at a range of measures of slackness in the labour market before tightening policy.

It had been using the jobless rate as single indicator since its initial forward guidance in August.

“The only thing that seems to stand out from the BoE minutes is the comment on strong sterling adding to downside risks to consumer inflation,” said Valentin Marinov, strategist at Citi.

“This could be seen as moderately sterling-negative. All in all, we could see some temporary downside for sterling from here,” he said, adding the currency remained a buy on dips. - Reuters



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