Forex - GBP/USD gains on upbeat BoE inflation report

The pound strengthened against the dollar on Wednesday after the Bank of England said in its inflation report that jobless rates may decline somewhat faster than once expected.

In U.S. trading on Wednesday, GBP/USD was trading at 1.6018, up 0.72%, up from a session low of 1.5879 and off from a high of 1.6046.

Cable was likely to find support at 1.5854, Tuesday's low, and resistance at 1.6118, the high from Nov. 6.

The pound saw support after the BoE’s quarterly inflation report released earlier predicted that the U.K.'s unemployment rate will fall faster than it expected three months ago. 

BoE Governor Mark Carney stressed that there is a "two in five chance" that it could be 7% at the end of 2014, though the central bank reiterated that the unemployment rate falling below 7% would not automatically trigger an increase in interest rates.

Still, the optimistic outlook gave the pound support.

The BoE added it now expects economic growth of 1.6% this year, up from 1.4% predicted in August, and said growth will hit 2.8% in 2014, up from 2.5%. The bank still expects growth of 2.3% in 2015.

The bank said inflation fell back in the four months to October somewhat more than expected at the time of the August report. The near-term inflation outlook is lower than expected three months ago, and inflation is likely to fall a little further during 2014, helped by the recent appreciation in sterling.

Separately, the Office for National Statistics on Wednesday said that the number of individuals claiming unemployment benefits in the U.K. fell by 41,700 in October, better than expectations for a decline of 35,000 people.

September’s figure was revised to a drop of 44,700 people from a previously reported decline of 41,700.

The unemployment rate ticked down to 7.6% in the three months to September the ONS said. 
Economists had expected the unemployment rate to remain unchanged at 7.7%.

The pound, meanwhile, was up against the euro and up against the yen, with EUR/GBP down 0.56% at 0.8401 and GBP/JPY up 0.46% at 159.19.

The euro weakened earlier after ECB executive board member Peter Praet told the Wall Street Journal that the bank could cut deposit rates to below zero and commence asset purchases to lift inflation closer to its target of just below 2%.

Praet's comments came amid fears that deflationary pressures are growing in the euro area. The euro zone's annual inflation rate fell to a four-year low of 0.7% in October, prompting the ECB to cut rates to a record low 0.25% last Thursday.

On Thursday, the U.K. is to produce data on retail sales, while the U.S. is to release official data on the trade balance and its weekly report on initial jobless claims.