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London - The pound wiped out earlier declines after a report showed that unemployment in the UK has fallen to a 42-year low and earnings increased more than expected.
Gains in the currency were however limited as Bank of England (BoE) Deputy Governor Ben Broadbent said he isn’t ready to support an increase in interest rates. Investors have been waiting for the labour data to see if it would support the case for an interest-rate rise after a 5-3 split vote for no change at the BoE’s last meeting.
Regular earnings increased by 2% in the three months through May from a year earlier, higher than a forecast for 1.9%. This remains behind the rate of inflation, with real pay falling by 0.5%, showing British consumers are still feeling the squeeze on their spending power.
In the labor report “the headline numbers were encouraging,” said Stuart Bennett, head of Group-of-10 currency strategy at Banco Santander SA. But “if the hawks jumped upon this as a reason to hike I think they would be extremely premature. I still favor the pound going weaker back toward $1.25” by the end of the year, he said.
The pound was little changed at $1.2852 as of 11:00. Sterling earlier reached its lowest in two weeks against the dollar after The Press and Journal newspaper cited Broadbent as saying while there is reason to see the committee moving in the direction of raising rates, “there are still a lot of imponderables.”
In the money markets, short sterling futures opened higher across the strip. The market now sees the chance of a 25-basis point rate increase in December at 57%. This number had dropped to 44% earlier on Broadbent’s comments.
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