August 8, 2013 / 3:17 PM / 6 years ago

Uncertainty over BoE guidance lifts sterling to 7-week peak

* Sterling hits seven-week high versus softer dollar

* Continues to gain in the wake of BoE Inflation Report

* Next week’s jobless data could be key for pound

By Spriha Srivastava

LONDON, Aug 8 (Reuters) - Sterling hit a seven-week high against a weaker dollar after the previous day’s Bank of England Inflation Report left open the prospect of rates rising sooner than previously thought if the economy accelerates sharply.

The pound rose 0.5 percent to $1.5564, its strongest since June 19, with traders saying it extended gains after breaking above the 200-day moving average at $1.5537 and a reported options barrier at $1.5550.

The dollar was also broadly weaker as recent inconclusive economic data and comments from Federal Reserve policymakers raised doubts over when the U.S. central bank will begin reducing stimulus.

Sterling extended strong gains recorded on Wednesday after the BoE’s forward guidance, which tied future rate rises to when the unemployment rate - now at 7.8 percent - drops to 7 percent.

The BoE forecast this would not happen for three years. However, a raft of firmer UK data recently has suggested the UK’s recovery is on a firmer footing and businesses could increase hiring in the coming months.

Investors were also mindful an improving economy could push up inflation after the central bank included “knockout clauses” in its guidance to allow it to raise rates under certain circumstances, one being if its forecasts showed inflation at 2.5 percent or more in 18-24 months.

“The addition of the knockout clauses gives a lack of clarity to the forward guidance,” said Sara Yates, global currency strategist at JP Morgan Private bank.

Some analysts said the next UK jobs report, due out next Wednesday, would now be scrutinised more closely after the BoE tied a rate hike to unemployment levels.

“Volatility over that specific event, the jobless rate, will be higher,” said Saeed Amen, currency analyst at Nomura. “I think any decline in the unemployment level will be bullish sterling.”

Inflation data for July due on Tuesday will also be watched closely in the wake of Wednesday’s Inflation Report, especially as UK inflation last stood at 2.9 percent in June, well above the BoE’s 2 percent target.

“Given that CPI inflation has averaged above 2.5 percent over the last 18 to 24 months, the market is wary that the BoE may tighten policy before 2016,” Bank of Tokyo Mitsubishi said in a note.

The euro was down 0.1 percent against the pound at 85.98 pence, near a one-month low of 85.785 hit on Wednesday. (Additional reporting by Anirban Nag; Editing by Susan Fenton)

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