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Forex News – UK unemployment falls; sterling rallies

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The news about better-than-expected UK employment statistics helped the pound move higher in today’s trading.  Unemployment fell to 5.7% for the three months to December – its lowest since July 2008 and below expectations for it to remain constant at 5.8%.  The claimant count number of unemployed fell by 38.6 thousand during January, against expectations of a drop of 25 thousand expected by economists.  These statistics show that the UK economy is creating enough jobs to lower the rate of joblessness as well as shorten unemployment queues.

With respect to earnings, the news was overall positive but with some mixed messages compared to expectations.  The year-on-year growth in average weekly earnings was at 2.1%, versus 1.8% the previous period and 1.7% expected.  This is interesting, as inflation has fallen significantly lately – the latest reading is around 0.5% – resulting in some of the biggest inflation-adjusted wage gains since the financial crisis began.

Less good was the increase in average earnings excluding bonuses, as it was slightly below expectations at 1.7% compared to 1.8% expected.  This shows that positions that pay bonuses – usually jobs with higher pay – are enjoying faster wage growth than non-bonus related jobs.

The news is welcome for a government that is behind in opinion polls, as it offers some evidence that the economy is improving.  The UK General Election will take place in early May.

In another development, the minutes of the Bank of England meeting that ended on February 5 showed that the Monetary Policy Committee (MPC), was unanimous in keeping interest rates steady at 0.50%.  The news from the employment report, combined with the more upbeat tone of the Bank of England quarterly inflation report, makes it more likely that the Bank will start thinking about normalizing monetary policy sooner rather than later.

The pound rallied sharply higher versus the dollar after the release of the data, stabilizing around 1.5425 from 1.5350 before the announcement.  The euro fell to its lowest in more than 7 years against the pound to 0.7362.

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