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Forex: UK unemployment in focus as sterling shrugs off weak inflation

It’s a good thing Bank of England Mark Carney has changed his forward guidance to look at spare capacity as opposed to just unemployment as today should see the rate edge 0.1% lower to 7.1%, a stone’s throw from his original threshold of 7.0% that would have triggered the first interest rate hike in the UK.  Despite his arch dovishness and yesterday’s fall in inflation for the UK, sterling was very quick to reverse initial weakness and GBPUSD rallied back above the 1.6700 level, this morning it trades at 1.6745.  Only last week cable hit a fresh four year high, putting 1.7000 in sight and with the near term trend continuing to maintain an upward bias, bulls of sterling will be closely watching for a test of resistance seen at the recent highs around 1.6820.

Despite the headline figure being key and also the claimant count number likely to drive sterling’s moves today, commentators will be focusing more on the potentially headline grabbing average earnings figure.  This is due to come in at 1.7%, higher than yesterday’s 1.6% CPI number and the first sign than real incomes are increasing.  For those serious inflation bears out there, this could prevent any continued steep decline in inflation as the already consumer lead recovery in the UK picks up steam.

Chinese data overnight has assisted a return of risk appetite this morning as both retail sales and the headline GDP figure exceeded expectations.  The Yen has ceded some ground and indices are heading higher as it looks like investors are looking ahead to the Easter break with optimism.

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