Dismal U.K. Unemployment Spooks Sterling Investors |
By Barbara Zigah
Markets had digested and accepted yesterday’s release of U.K. inflation data, and in early trading today, the Pound Sterling had moved broadly higher. Unfortunately, that was all before the release of the Bank of England’s February inflation report. As the central bank governor, Mervyn King, announced in his letter to the Chancellor of the Exchequer, the Bank was revising their growth forecast, suggesting that the U.K. economy can expect some rough times ahead. Some analysts believe that Governor King was essentially setting the stage for what is likely to be several interest rate hikes during the course of the year.
Had that been the only U.K. economic news of the day, the markets might have shown their appreciation in the Pound Sterling by pushing it higher. However, the U.K. unemployment data also was released today, and that dampened market sentiment.
According to the press release from the U.K.’s Office for National Statistics, for the last quarter of 2010, the unemployment rate rose .1% to 7.9%, which was in line with economists’ forecasts. Applications for initial benefits for unemployment rose by 2,400 new claims, however; a consensus of economists had predicted a decline of 3,000. Worse yet, real wages fell to the lowest level in nearly five months.
The two pieces of economic news are playing havoc with the Pound Sterling, as it appears that investor euphoria over the prospect of a rate hike is being trumped by the dismal labor data. The Pound Sterling is being hit hard, trending lower against the majors. Against the U.S. Dollar, the Pound is trading at 1.6056; on the eToro trading floor, among traders of GBP/USD the sentiment is bullish with a ratio of 6 to 4 in favor of buying. The Pound is also lower against the Euro; EUR/GBP is at .8412 and on the eToro trading floor, the sentiment is bullish with a ratio of 5 to 3 in favor of buying. Against the Japanese Yen, the Pound Sterling is trading at 134.5464; on the eToro trading floor, among traders of GBP/JPY the sentiment is bullish with a ratio of 9 to 2 in favor of selling.
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