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British Pound Flirting with Multi-Year Highs

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British Pound Flirting with Multi-Year Highs

The British pound peaked at 1.6841 US overnight, the highest level since 2009, as stronger than forecast employment data fueled speculation of an early rate hike.

By the morning, the GBPUSD pair was trading at 1.6818, recovering from an intraday low of 1.6795. Sterling soared Wednesday after the Office for National Statistics said UK jobless claims declined 30,400 in March and the unemployment rate fell to 6.9 percent between December and February.

With UK unemployment at a five-year low, speculation the Bank of England could raise interest rates sooner than expected has resumed. Until now, officials at the BOE have pledged to keep interest rates highly accommodative to account for underlying slack in the economy.

Faced with a rapidly improving labour market, the BOE modified its rate guidance strategy earlier this year, decoupling monetary policy from the unemployment rate. The central bank, which made unemployment a lynchpin of monetary policy last summer, said it would keep interest rates at record lows after unemployment had fallen below 7 percent. Prior to the March jobs report, the markets weren’t expecting a rate hike until sometime next year.

Speculation about the pace and timing of a rate hike will continue next week, and could potentially reach a boiling point next Wednesday when the bank of England releases the minutes of its latest policy meetings. Until now, BOE officials have given no indication a rate hike is imminent.

In other trading, the EURGBP rebounded slightly after two consecutive days of decline. The pair was up 0.1 percent to 0.8234.

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