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Sterling Soars as UK Joblessness Approaches BOE Threshold

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Sterling Soars as UK Joblessness Approaches BOE Threshold

The British pound soared after the UK jobless rate fell to the lowest level in more than five years, increasing expectations the Bank of England will raise interest rates sooner than previously expected.

The UK jobless rate fell 0.3 percentage points to 7.4 percent in the three months to October, as 99,000 fewer Britons applied for unemployment benefits during that period. The UK labour market has been a prime benefactor of Britain’s unexpected surge over the past two quarters, forcing the BOE to shift its stance on forward guidance several times.

The UK’s unemployment rate could reach the central bank’s threshold of 7 percent by the end of next year, according to economists surveyed by Bloomberg. The BOE initially forecasted unemployment to reach the 7 percent target in mid-2016.

The British pound responded positively to the news, retracing earlier losses against the US dollar and euro. Sterling soared 117 pips to 1.6388 US, toppling three technical resistances in the process. The dollar was unable to hold its gains despite stronger than forecasted housing starts in November. Housing starts in the United States reached an annual rate of 1.09 million in November, toppling estimates.

In Europe, the British pound retraced 67 pips against the common currency, sending the EURGBP back toward the 0.84 handle. The pair breached three technical supports on its way to a session low of 0.8389, as market participants disregarded an improved business climate in Germany.

BOE Governor Mark Carney has repeatedly cautioned the markets not to take the central bank’s threshold as an imminent rate-hike trigger. Market participants appear convinced the BOE will become the first major central bank to boost interest rates.

The UK economy expanded for the third consecutive quarter in Q3 at a rate of 0.8 percent. The unemployment rate has dropped 0.4 percentage points since Mark Carney took over as Governor on July 1.

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