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The pound powered up to a seven-month high versus the dollar after a government report showed unemployment surprisingly dropped, adding to indications that the U.K. economy is taking its flight back to good status.
Sterling surged to the best level since January against the euro as the unemployment rate marched toward the 7 percent threshold at which the Bank of England said it will reevaluate its policy of keeping interest rates down. Central bank Governor Mark Carney along with fellow policy makers Paul Fisher, David Miles and Ian McCafferty, will testify to parliament tomorrow. U.K. government bonds were slightly altered after standard 10-year yields skyrocketed to the topmost point in two years.
Unemployment Rate
The U.K. unemployment rate as measured by International Labour Organization methods slide down to 7.7 percent in the three months through July from 7.8 percent in the second quarter, the Office for National Statistics said in London. The median forecast of economists was for 7.8 percent. In August, unemployment claims slashed 32,600, more than analysts had forecast.
Carney’s Testimony
Bank of England officials introduced guidance on the path of interest rates last month and said they won’t raise borrowing costs until unemployment falls to 7 percent. While they don’t see that happening until late 2016, signs of strength in the economy have prompted investors to bet on an earlier increase.
The gilt reaction today “may also have been damped by the proximity of Carney’s testimony to the Treasury Committee tomorrow,” wrote Jamie Searle, a fixed-income strategist at Citigroup Inc. in London. “Carney is likely to be quizzed on guidance and perhaps what the MPC intends to do if the market continues to ignore” it, he said, referring to the central bank’s Monetary Policy Committee.
Gilts relinquished 5.1 percent this year through yesterday, according to Bloomberg World Bond Indexes. German bunds gave up 3 percent and U.S. Treasuries fell 4.1 percent.
