The unemployment rate in the UK rose from 7.1% to 7.2%, shying away from the previous 7% BOE target. This is a disappointment. On the other hand, the number of jobless claims dropped by 27.6K, better than expected. The unemployment rate in the UK for the month of December was expected to remain unchanged at 7.1%. The Claimant Count Change (change in jobless claims) was expected to drop by 18K in January, after a drop of 24K in December (before revisions). As expected, the MPC Meeting Minutes showed a unanimous vote for maintaining the interest rate at 0.50% and the QE program at 375 billion pounds.
GBP/USD made a move higher towards the publication, rising from a steady trade around 1.6670 to 1.6720 minutes before the announcement. GBP/USD prefers to see the glass half empty and drops below 1.67 to 1.6675.– more coming
The Average Earnings Index was expected to rise by 0.9% and they rose by 1.1%, countering previous, weaker inflation figures.
Analysis
- So far, the UK unemployment rate followed a clear and strong path downwards. It has now met a bump on the road.
- Both the weaker than expected inflation and weaker than expected unemployment rate allow Carney more flexibility on the rates.
- The resulting weaker sterling also supports a broader recovery – one that does not lean solely on housing, but perhaps on exports as well.
More:Â UK data analysis: Carney has more breathing space to support the fragile recovery
Last week, the Bank of England presented its new forward guidance, which focused on the output gap. The inflation report included a hint about a potential interest rate hike. The Bank now aligns its expectations with the market’s ones: a hike in Q2 2015 instead of 2016.
This triggered a big rally in GBPUSD that eventually reached a 4 year high above 1.68. The rally didn’t last too long.
However, the weaker than expected inflation figures, which showed that headline CPI slipped below 2% to 1.9%, hurt the pound and basically allow for Carney and his colleagues to be more flexible with the rates.
1.6668 and 1.6618 serve as support. 1.6747 and 1.6823 work as resistance. For more, see the Pound dollar forecast.
