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Pound Rallies as Unemployment Falls Closer to the BoE Threshold

Benjamin Spier
  • UK jobless claims declines 32.6 thousand in August, more than expected
  • Unemployment falls closer to the BoE threshold in 3M period ending in July
  • Pound temporarily rallies above 1.5800

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The Pound rallied on news that the BoE may be a step closer to unwinding stimulus efforts, as the fall in UK jobless claims beat expectations and the unemployment rate fell to an eight month low.

UK jobless claims declined by 32.6 thousand, beating expectations for a 21 thousand decline in the number of people claiming unemployment benefits and continuing the 36.3 thousand decline in July, which was revised lower today. The UK Office of National Statistics also reported that the unemployment claimant count rate fell to a new 4 year low of 4.2%, down from 4.3% in July.

Furthermore, the ILO unemployment rate for the three months ending in July fell to an eight month low of 7.7%. Over the same period, payrolls rose by a more than expected 80 thousand, and average weekly earnings rose by 1.1%, less than expectations for a 1.3% rise.

The unemployment rate shifted into focus for Pound traders last month, when the Bank of England announced that it will only raise interest rates once the unemployment rate has fallen back to 7.0%, with an inflation clause. As explained earlier by Currency Strategist Ilya Spivak, the BoE forecasted that unemployment will remain above 7% until Q3 of 2016, so recently improved jobs numbers may send the unemployment rate lower at a faster pace than the central bank expected.

That is why the Pound finished a 90 pip rally against the US Dollar following the release, although nearly half of that was soon pared as Cablefell back below 1.5800. A recently broken declining trend line from February may now provide support around 1.5689. A rising trend line from July may provide resistance around 1.5884.

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GBPUSD Daily: September 11, 2013

Pound_Rallies_as_Unemployment_Falls_Closer_to_the_BoE_Threshold_body_gbpusd.png, Pound Rallies as Unemployment Falls Closer to the BoE Threshold

Chart created by Benjamin Spier using Marketscope 2.0

-- Written by Benjamin Spier, DailyFX Research. Feedback can be sent to bbspier@fxcm.com .

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