BOE might want to keep rates low
UK unemployment rate fell from 7.8% in July to 7.1% in December. That’s a pretty impressive achievement and the one that helped GBP/USD to conquer levels above $1.6600. Note that the Bank of England’s unemployment target is at 7%. Of course, reaching this level won’t necessarily trigger a rate increase. Still, traders will be speculating and pricing in such opportunity. Higher rates and strong pound isn’t something the BOE dreams of, so what will the regulator do? Here’s an interesting opinion from Investec.
Investec: “Mr. Carney said the unemployment rate has “a nice clarity”, but the MPC doesn’t want an unnecessary focus “on just one indicator.” So the implication is the BOE will look at a broad range of economic factors when assessing the need for higher interest rates, a sign that officials may be preparing to play down the link between the BOE policy and falling unemployment, allowing them to keep rates low for longer and not hinder the recovery.”