Forex Market: GBP/USD strengthens toward the strongest level since November 2009 as UK jobless rate falls to a 5-year low

The British pound approached to the strongest level in more than four year against the US dollar as the UK unemployment fell to the weakest level in five years in the three months through February, raising speculations BoE would have to raise interest rates sooner-than-projected.

GBP/USD hit a session high at 1.6818 at 08:50 GMT, after which consolidation followed at 1.6799, adding 0.44% for the day. Support was likely to be found at April 15th low, 1.6662, while resistance was to be met at April 10th high, 1.6820. On February 17th, the pair touched 1.6823, the strongest since November 2009.

The unemployment rate in the UK, as measured by International Labour Organization (ILO) methods fell to 6.9% in the three months through February, the weakest since the three months through February 2009, surpassing analysts expectations for a level of 7.1%. For the quarter through January, the index stood at 7.2 %. With this last drop, unemployment fell below the 7.0% threshold that Bank of England set as an initial guide of considering raising borrowing costs. Most likely the central bank will monitor a wider range of indicators before increasing interest rates. According to the new policy of providing future development directions (forward guidance), the central bank focuses on more indicators, including productivity and wage level, as opposed to only the unemployment level.

“The unemployment data is pretty encouraging and we like sterling from here,” said Josh O’Byrne, a foreign-exchange strategist at Citigroup Inc. in London. “This opens up the possibility that the Bank of England may need to raise interest rates sooner than the market is expecting, which could spur on the sterling rally.”

Meanwhile, housing starts in the US rose by 0.946 million units in March, trailing analysts’ expectations of a 0.975 million gain and following a 0.920 million units added in the previous month, that was larger than initially reported.

In addition, the number of building permits rose 0.99 million in March, sharply below expectations for a 1.015 million permits and after a 1.014 million gain in the previous month.

“Housing will contribute positively to GDP this year, but not by nearly as much as in 2012 and 2013,” said Dana Saporta, director of U.S. economics research at Credit Suisse in New York, cited by Bloomberg. “We are seeing continued improvement in housing starts, but at a slower pace.”

Elsewhere, EUR/USD hit a session high at 1.3851 at 08:55 GMT, after which the pair consolidated at 1.3834, adding 0.14% for the day. Support was likely to be received at April 15th low, 1.3791, while resistance was to be met at April 14th high, 1.3863.