The very weak unemployment data and IMF warnings will keep Sterling on the defensive in the short term. Losses on economic grounds should still be contained given that the wider G7 outlook remains bleak. The bigger near-term threat to Sterling will come if there is renewed heavy selling pressure on financial stocks and global equity markets. Overall, a retreat back to 1.3720 is realistic over the next 48 hours.
The UK economic data was very weak on Wednesday with the unemployment claimant count rising by 138,400 for February after a revised 93,500 increase for January. This was the biggest monthly increase for at least 30 years with the unemployment total at a 10-year high while annual earnings growth weakened sharply to 1.8% from 3.1%.
According to the March minutes, the Bank of England voted 9-0 for the 0.50% cut in interest rates while there was also unanimous approval for the decision to adopt quantitative easing.
The unemployment data will increase fears over the economy and will ensure that the central bank continues to provide a strong stimulus to the economy. The IMF also warned that the UK economy would fare worse than the US and Euro-zone with a further small GDP contraction for 2009 following a decline of near 4.0% for 2009.
Sterling weakened to lows just below 1.3850 against the dollar and 0.9420 against the Euro following the dismal data before consolidating.
Sterling should still gain some protection in relative terms given that the near-term outlook throughout the G7 area remains bleak.