News Column

Pound Slides As BoE Lowers Wage Growth Forecast, Signals Rate Hike Gradually

August 13, 2014

BRUSSELS (Alliance News) - The pound declined against its key counterparts in European deals on Wednesday, as the Bank of England reduced its wage growth estimate and reiterated that the increase in interest rate will be gradual.

"In light of the heightened uncertainty about the current degree of slack, the committee noted the importance of monitoring the expected path of costs, particularly wages, the BoE said in its quarterly Inflation Report.

The BoE now sees wages, on average, to increase by 1.25% in 2014. This is sharply down from its previous estimate of 2.5%.

As slack has been absorbed, financial market expectations of the date of the first Bank Rate rise have moved forward, it said. But when Bank Rate does begin to rise, the pace of rate increases is expected to be gradual, with rates probably remaining below average historical levels for some time.

The UK unemployment rate continued to fall as expected by economists, hitting the lowest since late 2008, data from the Office for National Statistics showed.

The jobless rate came in at 6.4% during April to June, in line with forecast. There were 2.08 million unemployed people, which was 132,000 fewer than for January to March.

The claimant count fell to 3% in July from 3.1% in June. The claimant count rate also matched expectations.

Pulling away from an early 6-day high of 1.6842 against the dollar, the pound slipped by 0.7% to a new 2-month low of 1.6716. The pound is likely to find support around the 1.66 zone. At yesterday's close, the pair was worth 1.6810.

The pound retreated to a 5-day low of 1.5184 against the Swiss franc, after having advanced to a 6-day high of 1.5321 a short while ago. The pound is poised to challenge support around the 1.51 level. The pound-franc pair was worth 1.5256 when it closed deals yesterday.

The pound hit a 5-day low of 171.19 against the yen and a 2-day low of 0.7992 against the euro, after advancing to a 6-day high of 172.59 and a 1-week high of 0.7920, respectively in early deals. The next likely support for the pound lies around 170.00 against the yen and 0.805 against the euro.

Looking ahead, the US advance retail sales for July and business inventories for June are set for release in the New York session.

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Source: Alliance News

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