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FOREX Watch: Pound sterling soars as unemployment drops to 7.7 percent

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FOREX Watch: Pound sterling soars as unemployment drops to 7.7 percent

The British pound enjoyed a broad rally against its major peers after the UK Statistics Authority said the number of unemployed people declined in August. The Claimant Count Change dropped by 32,600, beating expectations for a decline of 22,000. The unemployment rate for the three months ending in July declined 0.1 percentage points to 7.7 percent. The unemployment rate has gradually improved over the past year and a half after peaking at 8.4 percent in October 2011.

The falling unemployment figure has positive implications for consumer spending, and is a sign the British economy may be heading toward its targets faster than previously anticipated. At the same time, falling unemployment has fueled skepticism concerning British macroeconomic policy. Last month Bank of England Governor Mark Carney introduced forward guidance, tying the nation’s interest rates to the unemployment rate. Carney’s attempt to reassure borrowers interest rates will remain at record lows was taken with a grain of salt, as many analysts expect unemployment to reach its target of 7 percent before the central bank timetable of mid-2016.

The British pound advanced more than 0.4 percent against the US dollar, hitting a session high of 1.5827 in European trade before consolidating at 1.5800. The pair has gained more than 1.3 percent over the previous five days and more than 5.2 percent over the previous six months, nearly erasing the dollar’s gains year-to-date.

The euro declined more than a quarter percent against the pound, sending EURGBP below the 0.84 handle. The pair consolidated at 0.8410. Data on Germany’s consumer inflation met expectations Wednesday, as the Eurozone growth engine continues to gain traction. Earlier in the week Eurozone investor confidence improved to its highest level since May 2011, according to a monthly report from Sentix GmbH.

The pound’s resurgence comes as the British economy continues to pull itself out of recession. On Thursday the Treasury Committee will examine the nation’s struggle with inflation at a hearing in front of the House of Commons.

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