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GBP/USD – Pound Surges As UK Unemployment Dips to 7.1%

The British pound has jumped more than 100 points in Wednesday trading, as GBP/USD trades close to the 1.66 line. British releases looked sharp on Wednesday, led by the Unemployment Rate, which dropped to 7.1 %, its lowest level in almost five years. Claimant Count Change posted another decline, and the Public Sector Net Borrowing improved sharply in December. It’s another quiet day in the US, with no releases scheduled until Thursday.

The UK Unemployment Rate dropped to 7.1% in December, down from 7.4% a month earlier. The reading caught the attention of the markets, as the BOE has previously stated that the 7.0% unemployment level was a threshold at which it would consider raising interest rates, which currently are at 0.50%. However, the market excitement is likely premature, as the BOE has recently noted that the 7.0% threshold would by no means trigger a rate increase. In the minutes of the BOE’s recent policy meeting, published on Wednesday, the Bank noted that the 7.0% level would likely be met earlier than anticipated, but this did not mean that the BOE would immediately respond with a rate hike. Nonetheless, the pound shot higher on Wednesday, and there’s little doubt that the Bank will feel increased pressure to raise rates if the unemployment rate continues to drop.

In other UK releases, Claimant Count Change posted a decline of -24.0 thousand, a solid reading, although well short of the estimate of -33.8 thousand. Public Sector Net Borrowing pointed to a smaller deficit, with a reading of 10.4 billion pounds, down sharply from 14.8 billion last month. The December reading beat the estimate of 12.1 billion. As expected, the BOC minutes indicated that the MPC votes on interest rate and QE levels were unanimous (9-0) decisions.

The World Economic Forum kicked off Wednesday in Davos, Switzerland. The prestigious event will see senior political officials, head of foreign banks and business people from dozens of countries meet and mingle. Traders should note that currency markets can be affected by statements issued at the forum, particularly those made by central bankers or other senior officials.

Weak inflation concerns are not restricted to Europe or Japan, as the US has also been plagued by persistently low inflation, an indication of an underperforming economy. This was underscored by Core CPI, which posted a weak gain of just 0.1% in December. Producer Price Index posted a gain of 0.4%, reversing directions after three consecutive declines. Last week, Chicago Fed President Charles Evans said that the low rate of U.S. inflation is “both puzzling and worrisome,” and enough reason to maintain low interest rates, even if the employment picture continues to brighten. Analysts will be watching closely whether incoming Fed chair Janet Yellen shares these sentiments. Yellen takes over the helm of the Federal Reserve on February 1, replacing Bernard Bernanke.

 

GBP/USD for Wednesday, January 22, 2014

Forex Rate Graph 21/1/13

GBP/USD January 22 at 16:30 GMT

GBP/USD 1.6578 H: 1.6586 L: 1.6540

 

GBP/USD Technical

S3 S2 S1 R1 R2 R3
1.6329 1.6416 1.6549 1.6705 1.6964 1.7182

 

 

Further levels in both directions:

 

OANDA’s Open Positions Ratio

GBP/USD ratio is pointing to gains in long positions on Wednesday, continuing the trend we have seen all week. This is reflected in what we’re seeing from the pair, as GBP/USD has moved sharply higher. A large majority of the open positions in the GBP/USD ratio are short, indicative of a trader bias towards the dollar reversing its downward movement.

GBP/USD has posted strong gains on Wednesday. After strong gains in the European session, the pair has steadied in North American trading. This is the same pattern the pair displayed in Tuesday trading.

 

GBP/USD Fundamentals

 

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Kenny Fisher

Kenny Fisher [4]

Market Analyst at OANDA [5]
A highly experienced financial market analyst with a focus on fundamental analysis, Kenneth Fisher’s daily commentary covers a broad range of markets including forex, equities and commodities. His work has been published in several major online financial publications including Investing.com, Seeking Alpha and FXStreet. Based in Israel, Kenny has been a MarketPulse contributor since 2012.
Kenny Fisher

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