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UK Jobs Report Takes Could Boost Sterling

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UK Jobs Report Takes Could Boost Sterling

The British pound is poised to gain considerable traction Wednesday with the release of UK employment and earnings data. The pound’s most recent run stopped short of 1.70 US. Since then, the GBPUSD pair has backtracked somewhat as the markets continue to trade cautiously ahead of important events.

Tomorrow’s data could show UK jobless claims declined by around 30,000 in April, while average earnings including bonus rose above the standard of living for the first time in years, according to a consensus of market analysts. Wages including bonus increased 1.7 percent between December and February, matching the CPI rate of 1.7 percent.

The ILO unemployment rate fell from 6.9 percent to 6.8 percent between January and March, a more than five-year low, according to estimates.

Jobless claims declined 30,400 in March, as the unemployment rate fell from 7.1 percent to 6.9 percent in the three months through February, official data showed.

Strong labour market data, as is expected tomorrow, would support the view the Bank of England is prepared to raise the interest rate sooner than expected. The BOE, despite efforts to assure the markets interest rates will remain at record lows for the foreseeable future, is widely expected to become the first major central bank to introduce a rate hike.

The central bank was forced to abandon its rate guidance strategy earlier this year amid signs the unemployment rate was declining at a faster rate than forecast. The BOE made unemployment the lynchpin of monetary policy last August when the ILO rate was at 7.8 percent, announcing it would consider raising interest rates once unemployment had fallen to 7 percent.

Positive sentiment surrounding the employment report will also boost the British pound, which climbed to a five-year high against the US dollar last week. The GBPUSD fell 0.26 percent to 1.6825, recovering from an earlier low of 1.6819. The pair is still within range of 1.70, a level it narrowly missed last week. The pair’s initial resistance is at 1.6916.

The EURGBP was trading at 0.8141, losing 0.16 percent after a report surfaced the German Bundesbank would support monetary stimulus by the European Central Bank should persistently low inflation become entrenched in the currency bloc. Eurozone inflation climbed from 0.5 percent to 0.7 percent in the 12 months through April, according to an advance estimate from the European Commission. The revised estimates will be released Thursday.

Wednesday also sees the release of the Bank of England’s quarterly Inflation Report, which provides a detailed analysis of the UK economy and a forecast on inflation. UK inflation has moderated in recent months, falling to 1.6 percent in March, a fresh four-year low. April CPI data will be released by the ONS next Tuesday.

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