February 5, 2020 / 10:17 AM / in 2 months

UPDATE 2-Sterling dragged down by dollar strength post US ADP jobs data

* Graphic: World FX rates in 2019 tmsnrt.rs/2egbfVh

* Graphic: Trade-weighted sterling since Brexit vote tmsnrt.rs/2hwV9Hv (Recasts, adds dollar effect)

By Olga Cotaga

LONDON, Feb 5 (Reuters) - The pound fell nearly 0.5% to below $1.30 on Wednesday, pushed down by a stronger dollar following better-than-expected U.S. jobs data.

U.S. private-sector payrolls surprised analysts and rose 291,000 in January, much more than the 156,000 new jobs expected, driving the dollar to its highest in a week against the euro.

Sterling, the most volatile major currency, had been buoyed earlier in the day by a strong final reading of the UK services PMI for January.

The currency remained close to the six-week low it hit this week after Britain took a hard line on trade talks with the European Union.

Concerns that Britain’s fiscal expansion may not be as generous as previously expected also weighed on the pound, analysts said.

The purchasing managers’ index for the services industry - the biggest contributor to Britain’s GDP - was revised to 53.9 for January, up from 52.9, where economists had expected it to stay. It was the strongest reading since September 2018.

Sterling was trading down 0.4% at $1.2976, not very far from the low of $1.2942 it hit on Tuesday after Prime Minister Boris Johnson said Britain would not adhere to EU rules and regulations. It then rebounded on the back of a better-than-expected construction survey.

Versus the euro, sterling was flat at 84.78 pence .

The PMI data “reinforced the justification for the Bank of England holding off” from cutting interest rates last week, said Derek Halpenny, head of research at MUFG, adding that the central bank likely held off to get a better sense of Britain’s fiscal outlook.

Chancellor Sajid Javid is expected to present the new budget of the recently formed government on March 11, but tensions between Javid and Johnson’s allies are rising as Javid threatens imposing serious spending constraints.

Dominic Cummings, chief special adviser to Johnson, is pushing through a number of big spending commitments in areas such as health and police, as well as to revive the North and Midlands, promises that helped the Conservative Party to win the December general election.

“The pound is going to remain fairly weak and we should not expect much gains from the currency,” Halpenny said. “Our forecast profile is pretty flat.” (Reporting by Olga Cotaga; Editing by Larry King, Nick Macfie and Alex Richardson)

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