The dollar is falling sharply in comparison to the pound sterling on Wednesday. The quarterly inflation report from the Bank of England showed a more upbeat outlook on the U.K.’s employment situation, which fueled speculation that it will raise rates sooner than previously expected.
Bank of England Governor Mark Carney said the U.K. unemployment rate is likely to reach the threshold more rapidly than expected in the light of a strong economic recovery, which has added to market expectations of an early interest rate hike.
Nonetheless, he emphasized that the fall in jobless rate to 7 percent will not trigger an automatic rate revision.
The jobless rate is more likely than not to reach the threshold of 7 percent by the third quarter of 2015, the U.K. central bank said in its quarterly Inflation Report.
In August, Carney pledged to keep interest rates at the current 0.50 percent until the unemployment rate falls to 7 percent. Today’s forecast, together with strong economic recovery has further added to market expectations for an interest rate increase in 2015.
The dollar traded around the $1.5890 level against the pound sterling early Wednesday, but has since dropped to a 2-day low of $1.6000.
Unemployment rate in the U.K. declined to its lowest level in more than four years in the July-September period, raising prospects that the Bank of England may bring forward the timing of its future interest rate hike.
Data from the Office for National Statistics showed on Wednesday that the ILO unemployment rate fell to 7.6 percent in July-September from 7.7 percent in the three months through August. The figure was the lowest since February-April 2009. The number of unemployed was 2.47 million, the lowest in more than two years.
Data today showed that the claimant count for October fell by 41,700 from a month earlier to 1.31 million, the lowest level since January 2009. Economists had forecast a decline of 30,000. The claimant count rate fell to 3.9 percent from 4 percent in September.
Meanwhile, a member of the Federal Reserve says that the central bank might hinder an already tepid economic recovery by reducing the size of its $85 billion per month bond buying program.
“Reducing the flow of purchases in the near term would be a drag on the already slow rate of progress of the economy toward the committee’s goals,” Narayana Kocherlakota, president of the Minneapolis Federal Reserve, told the St. Paul Chamber of Commerce.
Because fears of inflation have not materialized, the Fed has plenty of room to maintain the scale of its quantitative easing program, or QE3, he argues.
The greenback climbed to a high of $1.3389 against the Euro on Wednesday, but has since retreated to around $1.3430.
Industrial production in the Euro Area decreased more-than-expected in September, after recording a modest growth in the previous month, latest data showed Wednesday. Industrial production dropped a seasonally adjusted 0.5 percent month-on-month in September, reversing the previous month’s 1 percent increase, statistical office Eurostat said. Economists had forecast a 0.3 percent contraction for September.
Japan’s economy continues to recover moderately but downside risks to recovery are slightly larger than upside risks, Bank of Japan Board Member Ryuzo Miyao said Wednesday.
“I’m somewhat more mindful of downside risks,” he told business leaders in Matsumoto, central Japan.
The buck has continued to retreat from yesterday’s 2-month high of Y99.788 against the Japanese Yen, to around Y99.370 on Friday.
Core machine orders in Japan contracted a seasonally adjusted 2.1 percent on month in September, the Cabinet Office said on Wednesday, coming in at 802.1 billion yen. The headline figure missed forecasts for a decline of 1.8 percent following the 5.4 percent increase in August.
An index tracking the prices of domestic corporate goods was down 0.1 percent in October compared to the previous month, the Bank of Japan said on Wednesday, standing at 102.5. That beat forecasts for a contraction of 0.2 percent following the downwardly revised 0.2 percent increase in September.