GBP/USD Plunges on Rising Unemployment, No Rate Hike Supporters

Pound/dollar took a dive on very weak economic data. The number of jobless claims jumped by 37.1K in July, much worse than expectations that stood on 20.1K and the highest in over two years. In addition, the unemployment rate for June jumped unexpectedly from 7.7% to 7.9%.

Adding to troubles, there is no support for a rate hike any more. The MPC voted unanimously in support of leaving the rates unchanged. Two persistent members that used to vote for a hike finally aligned with the rest.

Spencer Dale and Martin Weale had voted for a 0.25% for many months, alongside Andrew Sentance. Sentance retired from the committee a few months ago, and they kept voting for a hike. Now they have changed their mind, supporting no hikes. Given the state of the British job market, this is  understandable.

Regarding an option of a new  quantitative  easing program, Adam Posen remained the sole member voting for more pound printing – 50 billion pounds. If the economy continues to deteriorate, he could win some support from other members.

GBP/USD is falling to 1.6370 at the moment, after already touching 1.6350 – still far from support at 1.63, but after these disappointing figures, a challenge of this line sure is possible.

Yesterday, British inflation picked up, reaching 4.4%. This gave a boost to the pound. The Bank of England insisted that this is will fade away. No rate hikes are in the horizon. Market expectations stand on a hike only in the summer of 2012.

GBP/USD was trading above the 1.64 line before the publication. It dropped from an earlier attempt to breach the tough 1.6470 resistance line. Support is at 1.63, followed by 1.62.

For more on the pair, see the British pound forecast.