Last updated: August 14, 2013 4:25 pm

Sterling climbs on labour market data

Sterling climbed after the number of benefit claimants in the UK fell sharply in June while one member of the Bank of England’s Monetary Policy Committee raised concerns over inflation.

The pound rose 0.6 per cent to $1.5535 against the dollar and 0.6 per cent to £0.8532 against the euro.

The data showed that the UK unemployment level held at 7.8 per cent in June but a large fall in benefit claimsraised expectations that the level of joblessness will fall more quickly than envisaged by the Bank of England.

Last week, the central bank made any future rise in interest rates contingent on the rate of unemployment falling to 7 per cent – a level the Bank forecast will be reached in the second half of 2016.

Gilt yields, however, have recently moved a little higher with shorter-dated two- and three-year gilts suggesting that the BoE may have to move earlier.

“The much better than expected drop in the claimant count, rising employment and increasingly upbeat business surveys suggest the rate could soon start to fall, possibly quite sharply,” said Chris Williamson, an economist at Markit, the data company.

Meanwhile, minutes from the BoE’s last MPC meeting showed the nine-member group voted unanimously to hold the main interest rate at 0.5 per cent and the asset purchase programme at £375bn.

But one member – Martin Weale – dissented on the forward guidance vote, electing for a shorter time horizon, reflecting his concerns over rising inflation expectations.

The euro failed to gain any traction from second-quarter gross domestic product data that showed the eurozone pulled out of recession.

Peter Vanden Houte at ING said that, while a return to growth was progress, a large output gap remained.

“The European Central Bank will continue to use forward guidance to prevent monetary conditions from tightening and we don’t see any chance of a rate hike before the second half of 2015.”

The euro traded flat at $1.3258 against the dollar.

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