British Pound Reacts to UK Jobs News

01/20/2011 5:04 am EST

Focus: FOREX

On the fundamental side of the equation, jobless claims in the UK fell 4.1K in December after tumbling 3.2K the month prior amid economists’ expectations for no change. At the same time, the claimant count and ILO unemployment rate remained unchanged at 4.5% and 7.9%, respectively. Indeed, today’s decline in jobless claims marks the lowest level in 21 months; however, private sector job creation is expected to come under pressure in the upcoming months.

The government will implement its toughest spending cuts since World War II, which will weigh on growth. In turn, an uptick in the unemployment rate should not be ruled out in the near term. Meanwhile, the breakdown of the report showed that the annual growth rate for total pay remained unchanged at 2.1% during the month of November, while wages excluding bonuses stayed at 2.3% in November.

However, the GBP/USD gained strength in the last seven days and has been in a strong uptrend since the beginning of 2011, although yesterday it did show weakness due to the news about jobless claims.

I would continue to look for buys as long as the market remains above the 1.53436 low noted on the chart.

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Outside of the US dollar, the British pound was lower against all major currencies except for the Canadian dollar. Of particular importance, the GBP/JPY has broken below its rising channel that has remained intact for approximately two weeks. If price action can hold below 132, further losses should not be ruled out as technical indicators begin to paint a bearish picture.

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By David Song of

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