Sterling erases 2018 gains

Sterling fell further against a surging dollar on Friday, erasing all its gains for 2018 after investors shrugged off disappointing jobs data out of the United States to buy into the greenback. The pound, until recently one of the best performing major currencies, slid as much as half a percent to a four-month low of $1.3487, leaving the British currency nine cents below where it stood in mid-April.
Sterling has slumped more than six percent in a fortnight, hit by a rapid reversal in predictions of an interest rate hike from the Bank of England next week, a run of worse-than-expected economic data and an investor rush to buy dollars. The pound has also fallen below its 200-day moving average, a key technical level, for the first time since April 2017.
US job growth increased less than expected in April, official data showed on Friday, but that failed to dampen the dollar's recent rally into the end of the week. "Today we are seeing broad-based dollar strength, so cable is performing more or less in line with what the average G10 currency is doing against the dollar," said Vasileios Gkionakis, Head of FX Strategy at UniCredit.
"Looking at recent weeks though, the trigger was the change in expectations from the BoE and this week's PMIs (purchasing managers index) have sealed the case for the BoE staying on hold." Gkionakis said he expected the BoE to keep rates unchanged but given the large recent moves lower for sterling he said the bank would "want to keep its powder dry and see that the market doesn't completely price out rate hikes."
The disappointing services sector numbers this week followed weaker-than-expected GDP data last week. Market expectations of a rate hike have fallen from more than 90 percent in April to 10 percent today and, combined with a stronger dollar, encouraged traders to sell sterling.
Paul Bednarczyk, Head of G10 FX at Continuum Economics, said there was more downside risk for the pound and noted that it had failed to bounce even after the ruling Conservative Party performed better than forecast in local elections. Against a euro pulled lower by dollar buying, sterling traded up 0.1 percent to 88.27 pence.
This week has also seen renewed worries about Britain's negotiations with the European Union over their divorce. Senior lawmakers who back Brexit this week demanded that Prime Minister Theresa May drop a proposal for a customs partnership with the EU once it leaves the bloc, underlining concerns about divisions within the government ahead of more negotiations with Brussels.