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UK jobless rolls swelled by 138.4K versus expectations of 84.5K as the overall unemployment number crossed the critical 2 Million mark. The claimant count rate increased by 4.3% versus 4.0% forecast  while average earnings including bonus dropped from 3.2% the month prior to 1.8% in January.

Overall  the news was universally gloomy for the UK economy indicating that after a slight pause, the recession is likely to worsen as the steep increase in  unemployment will undermine consumer demand for the foreseeable future.  According to , Trades Union Congress- the broad union representative body in UK -  each UK job is “chased by 10 people”. A year earlier that ratio stood only at 4 showing the rapid rate of deterioration in the UK labor market.

  

The collapse in labor demand has been nothing short of stunning. Less than six months ago the claimant count rate was less than 3%, but it has accelerated so fast that may hit 5% before the year end. Tonight’s disappointing economic   news is likely to instill a greater sense of urgency amongst UK fiscal and monetary authorities. The BoE minutes which were released contemporaneously with the labor data  confirmed that the MPC voted unanimously to cut rates by 50bp and to initiate the 75 Billion GBP quantitative easing program. However given the current conditions, UK government will likely have to expand its stimulus programs.

Despite the negative  economic surprise the pound did not have much follow through in post news trade.  In fact after plumbing the 1.3850 level in the moments after the release,  the unit rebounded above 1.3900 handle  as short covering kicked in. Part of the reason for the decidedly nonchalant price reaction was the fact that currency was already sold heavily ahead of the news. 

Irrespective of the bounce, the pressure in the pound is likely to continue as today’s data makes clear that any signs of stabilization are far away.  1.4000 will now serve as a key resistance level and should the dollar gain any traction GBP/USD& nbsp; could revisit the yearly lows near the 1.3500 figure.  Even if the pound should rally and recover its losses ahead of today’s  FOMC meeting, its performance on the crosses especially EUR/GBP could be weak for some time to come.

UK Brown Admits Responsibility

 

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About The Author

Boris Schlossberg began his Wall Street trading career more than 20 years ago at Drexel Burhnam Lambert. There, he traded nearly every type of financial product on the market in the U.S., from equities and options to stock index futures and foreign exchange. His innate ability to analyze market information and use it to trade has helped him become an industry-recognized, “go to” trading professional.

These days, whenever the markets move, many organizations turn to Schlossberg for his take on the situation. He is a weekly contributor to CNBC's Squawk Box and a regular commentator for Bloomberg radio and television. His daily currency research is widely quoted by Reuters, Dow Jones and Agence France Presse newswires and appears in numerous newspapers worldwide. Schlossberg has written for publications like SFO magazine, Active Trader and Technical Analysis of Stocks and Commodities. He is also the author of Technical Analysis of the Currency Market and the co-author of Millionaire Traders: How Everyday People Are Beating Wall Street at Its Own Game with Kathy Lien. He joined GFT in 2008.