Sterling skidded by more than one percent against the dollar on Friday after a much stronger than expected US jobs report bolstered prospects of an interest rate hike from the Federal Reserve by September. Nonfarm payrolls increased by a hefty 280,000 last month, the largest gain since December, the Labour Department said, far exceeding expectations of 225,000 in a Reuters poll. Wages also picked up, with the largest gain in almost two years.
Having earlier traded up on the day as high as $1.5370 , the pound fell to as low as $1.5191 after the jobs report, before recovering a touch to $1.5236, still down 0.8 percent on the day. Against the euro, which fell as much as 1.5 percent against the dollar, sterling came from behind to trade 0.4 percent higher at 72.86 pence.
"This is the best of all possible worlds for the Fed. Very good numbers, plus some signs that labour force is finally responding as well as wages," said Steven Englander, global head of G10 FX strategy at Citi. "(The) interesting question is whether this is enough to put June back on table (for a rate hike)," he added, highlighting sterling and the Canadian dollar as the least vulnerable to the dollar's broad strength.
Though it left rates unchanged on Thursday, the Bank of England is seen as the most likely central bank to follow next on the heels of the Fed if it raises interest rates in the months ahead, meaning the pound tends to do better than other currencies on bets for an early US hike. But sterling is still more than one percent down against the euro for the week, having suffered as the single currency has surged on the back of sell-off in the bond market. Sterling has also been hit in recent weeks by a run of weaker-than-expected data that has raised questions over the sustainability of Britain's economic recovery. "A lot of disappointment is coming into sterling," said Jane Foley, a senior currency strategist at Rabobank in London. "There is this feeling in the market that we may have moved into a lower gear when it comes to the pace of growth in the UK economy."
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