The pound reached an 8 month high against the US dollar yesterday after further good data from the UK and China gave the pounds further impetus and diminished demand for the dollar’s safe haven appeal.
In the UK, speculation is mounting that the Bank of England will raise UK interest rates sooner than expected in response to the rapidly improving economic outlook.
Bank of England Governor Mark Carney has recently announced that UK interest rates would remain at their record low level of 0.5% as long as the unemployment rate stays above 7%.
Statistics from the Office for National Statistics yesterday showed that the number of people claiming jobless benefits in the UK fell by 32,600 in August, the biggest decline since June 1997 with a corresponding drop in the unemployment rate from 7.8% to 7.7%.
Of interest, today sees senior Bank of England officials including new Governor Mark Carney testify to the Treasury Select Committee, an event that will be closely watched by the markets looking to see any hints as to future policy.
Meanwhile, the US dollar fell to its lowest level against the pound since January as the weaker than expected employment data from the US out last Friday has led to speculation that at next week’s meeting, the Federal Reserve will hold back from starting to taper its stimulus programme when it meets next week.
This week has so far been dominated by a return to risk appetite after the better than expected data out of China has improved sentiment about the world’s second largest economy.