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Market Update

Sterling fell to its lowest in a week against the dollar and traded near one-week lows against the euro as more subdued risk sentiment across broader asset markets weighed on the currency.

Broader equity markets as measured by MSCI’s All Country World Index and Wall Street futures were lower, giving the dollar a lift, while riskier currencies pulled back.

Expectations of a large U.S. fiscal stimulus package from U.S. President Joe Biden’s administration has fuelled risk sentiment in markets in recent weeks, benefiting the pound, which has hit 2-1/2 year highs against a weakened dollar.

Sterling has also hit its highest against the euro since May 2020 last week, with analysts attributing the pound’s gains to a slower COVID-19 vaccine rollout in the European Union than in Britain.

Data showed Britain’s unemployment rate hit its highest in nearly five years in the three months to November when coronavirus cases began to rise for a second time and most of the country returned to a partial lockdown.

Redundancies touched a record high, taking the unemployment rate to 5.0%, its highest since mid-2016, according to official data, although the increase was slightly weaker than economists’ forecasts.

Bank of England Governor Andrew Bailey said this month that he believed the underlying jobless rate was higher, as the official definition excludes people without work who have temporarily postponed their job search due to the pandemic.

The data showed growth in wages rose by an annual 3.6%, the biggest increase in more than a year.

But the ONS said the increase largely reflected how the brunt of job cuts and lost pay had fallen on workers in lower-paid sectors and on part-time workers. Underlying pay growth was less than 2%, it said.

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