Pound surges on unemployment fall

Currencies Direct January 23rd 2014 - 2 minute read

The pound appreciated sharply yesterday as the
unemployment rate dropped to 7.1 per cent, very close to the 7.0
per cent threshold monitored by the Bank of
as a knockout to consider raising interest rates. As
the unemployment rate in the UK has fallen so rapidly, in the last
five months it has fallen by 0.7 percentage points, this puts
greater pressure on the BoE to act. In addition the Bank of England
Minutes did not indicate that the BoE has any plans of lowering the
7 per cent threshold at the moment. This further supports a market
view that interest rates will need to rise much sooner than the
Bank of England have been predicting.  In addition the fact
that the Bank of England have frequently managed to get their
forecasts wrong on various indicators such as inflation, growth and
now unemployment is a concern to their credibility.

In other news, Chinese HSBC manufacturing PMI
fell to 49.6 in January from 50.5 in December and is being
attributed to a decline in new orders and an increased in
inventories of finished goods.  This data has not had a direct
impact on the markets but will be of note in relation to overall
risk sentiment.  Later today we have lots of data feedback
from the US with Markit PMI, initial jobless claims, existing home
sales and preliminary consumer confidence.  It will be
interesting to see if the recent bad weather has had any impact on
the data and especially the initial jobless claims.
 Elsewhere, Australian
CPI data
surprised to the upside and this news significantly
reduces the chances of a near term rate cut by the Reserve Bank of

Today we also have PMI data from Europe. 
Manufacturing PMI data in Europe has had a strong run recently and
it is not likely that we will see today’s number overshoot
expectations but to come in broadly as expected.

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