THE TAKEAWAY: UK Jobless Claims dropped 12.1 thousand in December -> BoE minutes show an 8-1 vote to keep asset purchase target unchanged -> Sterling continues to rally
Jobless claims dropped by the most in four months according to the UK Office of National Statistics. UK jobless claims were down 12.1 thousand in December, much better than an expected 0.5K rise in claims and better than November’s revised 8.9 thousand drop in claims. ILO also announced the unemployment rate at 7.7% for the three months ending in November, beating expectations for the unemployment rate to remain at 7.8%. However, UK pay growth was only 1.5% higher in the same period versus a previous wage growth rate of 1.8%.
In the release of the minutes from the Bank of England’s January meeting, it was revealed that the vote to keep the asset purchase target at 375 billion Pounds was 8 to 1 for the third straight month. The dovish MPC member Miles again called for 25 billion pound increase to monetary stimulus. The vote to keep the interest rate unchanged was unanimous.
The bank minutes predicted that inflation will remain slightly above its 2% inflation target before slowing later in 2013. Echoing Governor King’s comments last night, the minutes said the bank sees a depressed Q4 GDP following the Olympics in the previous quarter. Regarding the Pound rate, Miles said that raising asset purchases would discourage appreciation, and the BoE said the currency may exceed the level needed for rebalancing of the UK. The minutes also reported that substantial headwinds to recovery remained, including the pressure from fiscal consolidation, a squeeze in household incomes, and deterioration of competitiveness.
The 2.7% inflation and the success of the Funding for Lending Scheme continue to dissuade the BoE from increasing monetary stimulus. However, Bank of Canada governor Mark Carney, who will take over as BoE governor in June, has said that central bankers may abandon inflation targets in favor of nominal growth targets. Any future increases in quantitative easing would be Sterling negative.
The BoE minutes were consistent with previous remarks, but the unexpected drop in jobless claims caused the Pound to continue to rise against the US Dollar. Cable saw some initial losses ahead of PM Cameron’s speech about a referendum on EU membership, but the losses were quickly reversed as the PM remained optimistic on the UK’s ability to negotiate desired changes to the union’s treaty. GBPUSD is trading around 1.5875 in currency markets at the time of this writing. Support could be provided by a four month low at 1.5823, and resistance could be provided by the key 1.6000 figure.
GBPUSD Daily: January 23, 2013
Chart created by Benjamin Spier using Marketscope 2.0
-- Written by Benjamin Spier, DailyFX Research. Feedback can be sent to firstname.lastname@example.org .