British Pound under Pressure – PaxForex

The British Pound tumbled today as economic reports out of the UK surprised forex traders who were counting on better data. Minutes from the last Monetary Policy Committee, or MPC, from the Bank of England also suggested that the Bank of England will remain on course with its current policy action as the vote was 9-0 against any changes in communication with the markets or thresholds which may trigger policy action.

The primary reason for today’s British Pound weakness was a slew of reports on the British labor market. The unemployment rate unexpectedly rose to 7.2% from 7.1%. Market participants and economists expected the unemployment rate to remain steady at 7.1. Governor Carney stated that once the unemployment rate drops below 7.0% it will trigger an evaluation followed by a potential reduction in the current asset purchase program.

After the unemployment rate dropped much faster than expected and as inflation remains around 2.0% or slightly above it many started to adapt the believe that the Bank of England may raise interest rates as soon as this year which has strengthened the British Pound against all major currency pairs. Forex traders should take this correction as a buying opportunity as it is likely that the overall uptrend will remain intact.

Besides the unexpected increase in the unemployment rate the net employment change over the three months which ended in December came in much weaker than the 250,000 expected. The reported figure came in at 193,000. The three months which ended November remained unchanged at 280,000; the positive news was a bigger than expected contraction in new jobless claims which dropped by 27,600.

Heating up the inflation debate was an increase in weekly earnings as well as weekly earnings excluding bonuses which rose 1.1% and 1.0% respectively. Should this trend continue it could spark wage inflation and pressure the overall inflation rate higher which could bring the Bank of England into play with a surprise interest rate hike towards the end of 2014.

Written by Paxforex