Sterling fell against the dollar on Friday after data showed US jobs and wages growing strongly in January, but was still on track for its biggest weekly gain against the greenback in a year. US nonfarm payrolls increased by 257,000 last month, marking the 11th straight month of job gains above 200,000 - the longest streak since 1994 - and putting a mid-year interest rate increase from the US Federal Reserve back on the table.
That sent the dollar higher across the board, gaining over 1 percent against a basket of currencies. Against sterling, the dollar was up half a percent at $1.5248. But the pound was still up more than 1 percent against the US currency for the week, boosted by economic data which drove investors to bring forward to early next year their expectations of when the Bank of England will start raising interest rates.
Jane Foley, a senior currency strategist at Rabobank in London, pointed out that sterling has outperformed every major currency over the past 12 months apart from the Swiss franc and the dollar. "Even if the BoE delays a rise in rates until February 2016, it is likely that the ECB will still be purchasing assets at this time as part of its QE plan," Foley said.
"In view of the divergent outlook for BoE and ECB policies next year we expect euro/sterling to reach push down towards 73 pence later this year and to fall further in 2016." Sterling was up 0.7 percent against the euro at 74.395 pence, close to a seven-year high while versus a trade-weighted basket of currencies, the pound was at its strongest in more than six years.
Purchasing managers' surveys for Britain's manufacturing, construction and services sectors all came in ahead of forecasts this week, while separate data showed UK house prices jumping unexpectedly. Data released earlier showing Britain's goods deficit widened much more than expected in December as imports of cheaper oil surged had little negative impact on sterling. Simon Derrick, head of currency research at Bank of New York Mellon, said that the bringing forward of UK rate hike expectations, as well as the pound's safe-haven appeal amid investor worries over Greece, was keeping sterling strong.