Sterling jumped against the dollar after the Bank of England Inflation Report increased the growth outlook for the UK economy. The BOE acknowledged that the UK is doing much better than it had forecast three months ago and can imagine the unemployment rate to fall to the bank’s threshold at 7 percent without having to change interest rates, by at least the fourth quarter of 2014. This fuelled speculation that after that the central bank could raise interest rates.
The pound rose on the news, and was also boosted after the UK jobs data showed the official unemployment rate fell to 7.6 percent from 7 percent and the claimant count change fell by more-than-forecast.
GBPUSD jumped to as high as $1.6003 from $1.5880 and entered the US session at $1.5968, with a 0.5 percent gain.
The euro traded more-or-less within yesterday’s range, as there were no major data released. Eurozone industrial production data disappointed, missing forecasts. EURUSD is down 0.2 percent at $1.3420. Technical indicators warn of downside risk.
Dollar/yen is flat and trading within yesterday’s range, hovering close to a two-month high of 99.80, remaining supported above yesterday’s low of 99.10.
The key driver for the dollar is expectations of tapering by the Federal Reserve. Since recent US economic data has been improving, there is growing speculation that the Fed could begin to cut stimulus as soon as its December policy meeting.