Pound off two-week high as labour market data disappoints

The UK pound has slipped off the two-week high it fetched on rate increase expectations as data from the labour market printed a different picture.

The GBP/USD dropped to 1.5602 from an early Asian high of 1.5672, its highest since 1 July, following the data. The pair had rallied 0.97% on Tuesday (14 July) helped by the remarks of Mark Carney, the Bank of England governor.

Carney had said that the time for a BoE rate increase is closer. According to the central bank, it will be consistent growth above trend and firming in domestic costs, counter-balanced by disinflation imported from abroad, that will lead to the rate increase.

The ILO unemployment rate of the UK rose to 5.6% in the three months to May from 5.5% in the quarter to April. Analysts had been expecting a repeat of the April number.

The claimant count increased by 7,000 against market expectations of a fall of 8,800. The April quarter decline has been revised to 1,100 from 6,500.

Average earnings including bonus increased by 3.2%, more than the 2.7% rise recorded in April but it trailed market expectations of a 3.3% increase. The decline in earnings growth will be disinflationary for the economy, weakening the rate increase call.

Technically, the currency has its upside chances intact until the 1.5400 support zone is broken. As long as the current area holds, the pound can move up to $1.60 in the coming weeks.

Against the euro too, the pound had touched a two-week high after Carney's remark on Tuesday but has moved down after Wednesday's negative data surprise.

The EUR/GBP rose to 0.7070, after falling to as low as 0.7020 in early Asia trade and compared to the previous close of 0.7040. The cross had touched an eight-year low of 0.6987 in the last week of June which is still not far away.