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GBPUSD: Weekly Analysis & Outlook

Sterling rose an even more impressive 1.45% due to risk-on flows encouraged by tumbling government bond yields and falling central bank rate expectations. It is nearing the 200-DMA at 1.2435 that it broke below in mid-September. Rather than talking about a strong pound, the main dynamic suggests a weakness in the US dollar.

Bank of England interest rate-setter Jonathan Haskel said on Friday that Britain’s labour market was not functioning as well as it should, which would keep interest rates high. Haskel said the ability of the labour market to match workers with vacancies appeared to have deteriorated. “With an impaired labour market, interest rates would have to remain higher for longer than would otherwise be the case,” he said in remarks he released alongside a panel discussion at a economics conference hosted by King’s College London. Haskel was one of three members of the BoE’s Monetary Policy Committee who voted for a rate hike on Thursday. A majority of six decided to keep Bank Rate on hold. He said some modelling he had done suggested Britain’s equilibrium unemployment rate – the rate needed to keep inflation low and stable – had risen as high as 6%. Haskel said in the panel discussion that this estimate was “very much an upper bound” but that he believed the equilibrium unemployment rate was “probably a bit higher” than the BoE’s latest, upwardly revised estimate.

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