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Sterling is on its front foot as the holiday shortened trading week draws to a close following better than expected UK employment statistics. Data released Wednesday showed that the unemployment rate in the UK bested the consensus forecast of 7.1%, declining to 6.9% in March; its lowest reading in almost 5-years.

Previous to this data the British unit had been looking at risk due to Tuesday’s CPI result, which revealed that inflation in the UK continued to slide last month. As recently as July 2013 inflation was at 2.9%, near the top of the Bank of England’s (BoE) target band, however this week’s number printed 1.6%. The speed and depth of these declines is a concern to the BoE, whom have already warned of the risks that dis-inflation pose to the broader UK recovery.

Investors however chose to focus on the unemployment number over the CPI result, driving cable to its strongest value since late 2009. The move to new highs injects fresh interest into this pair and revives talk of 1.7000. Talk that had previously been sidelined by strong economic results in the United States and the market’s bullish interpretation of comments from new Federal Reserve chairperson Janet Yellen.

The Pound’s gains also extended to the Euro, with GBPEUR edging up this week towards February’s annual high. GBPEUR aside, despite tensions in Ukraine flaring up again this week, the common currency has been remarkably buoyant as EUR$ holds near cycle highs, only a few couple of big figures away from 1.4000, a level not seen since 2011.

Like this week, a bank holiday compounds an already light data calendar next week. There is no top tier data to speak of until Wednesday next week when we get EZ Manufacturing & Services PMI numbers. Particular scrutiny will be on the French Manufacturing results given that last month it posted above 50.0 (indicating expansion) at 51.9. This was the strongest result in almost 3-years and the first time in 2-years that an expansionary number was achieved. Given the weak EZ inflation number released last month markets are wary that the expansionary Manufacturing PMI outcome might have been a 1-off event and will be sensitive to the risks of a sub-50.0 reading next week.

The voting statistics from the recent BoE policy announcement will also be published Wednesday. Expectations are that data will once again reveal unanimity amongst voting members of the Monetary Policy committee to maintain the current accommodative policy rate and quantitative easing program.

Further reading:  Forex Markets Likely to Goad ECB into Action