Pound Gains as Unemployment Decline Bolsters Case for Rate Boost

  • Sterling extends advance after comments by BOE's Haldane
  • U.K. jobless figure lowest since 2008; wage growth slows

The pound climbed against the dollar and euro after U.K. unemployment fell to the lowest in more than seven years.

Britain’s currency rose against all 16 of its major peers except the South African rand and extended an advance from last week’s six-month low versus the greenback. Improving economic data may encourage the Bank of England’s Monetary Policy Committee to raise interest rates sooner than the November 2016 priced in by futures markets. Sterling strengthened further after BOE Chief Economist Andy Haldane backed away from his stance on the prospect of a rate cut.

“The MPC will soon start to shift away from the doves toward the hawks,” said Neil Jones, the London-based head of hedge-fund sales at Mizuho Bank Ltd. “I noticed Haldane today is moving away from a U.K. rate cut. Sterling caught another bid after that. The shift has begun. Today was a watershed for me.”

Sterling strengthened 0.5 percent to 70.59 pence per euro as of 5 p.m. in London, its fourth day of gains versus Europe’s shared currency. It rose 0.6 percent to $1.5211, after sliding to $1.5027 on Nov. 6.

The unemployment rate fell to 5.3 percent in the third quarter, the lowest since 2008, while the number in work climbed to a record. Earnings excluding bonuses rose an annual 2.5 percent, down from the previous three months and missing the forecast of economists surveyed by Bloomberg.

The jobs report was “quite encouraging,” Mizuho’s Jones said.

‘Sustained Break’

Haldane’s comments at the BOE’s Open Forum in London Wednesday suggest a shift from a position he established earlier this year, when he said he had “no bias on either the size or direction of future interest-rate moves.”

U.K. government bonds fell, with the benchmark 10-year yield rising three basis points, or 0.03 percentage point, to 2.05 percent. It reached 2.09 percent on Monday, the highest since July. The 2 percent gilt due in September 2025 dropped 0.23, or 2.30 pounds per 1,000-pound face amount, to 99.535.

The spread, or extra yield, investors receive for holding 10-year gilts instead of German bunds was 144 basis points, the widest since May, amid speculation the European Central Bank will boost its stimulus program next month as the BOE considers when to tighten. The yield advantage helped the pound strengthen against the euro.

“We continue to like sterling from here, in particular against the euro,” said Sam Lynton-Brown, a London-based foreign-exchange strategist at BNP Paribas SA. “We target 70 pence into the end of the year and in 2016 we think euro-sterling will make a sustained break below 70.”

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