Sterling steadied just above $1.50 on Monday but fell against the euro and it looked to many strategists like one of the most exposed currencies to an expected further global rally for the dollar. The pound fell more than 2 percent against the greenback in two days at the end of last week, hit first by another perceived about-face by the Bank of England on interest rates and then shockingly strong US jobs numbers. The US data has bolstered expectations of a rise in US interest rates next month and a resulting surge for the dollar towards parity with the euro.
If the BoE is set to delay any monetary tightening of its own well into next year, then the pound can be expected to suffer too. Strategists from the currency market's third biggest banking player, Barclays, made betting on the dollar against the pound their trade of the week.
"We recommend shorting GBPUSD going into Wednesday's UK employment report," they said in a weekly note released on Monday, pointing to a breaking of longer-term support at $1.5180 on Friday. "A soft print in wage growth and slower job creation would add pressure to the pound, eyeing a low of 1.4566." By 1002 GMT, sterling was just 0.1 percent up on the day at $1.5069, compared to Friday's more than six-month low of $1.5027. It was 0.1 percent weaker at 71.46 pence per euro.
Although the Bank of England is forecast to be the next major central bank to raise interest rates after the Fed, markets have pushed out their expectations of when UK rates will rise from their historic lows until late 2016. BoE Governor Mark Carney signalled on Thursday that he was in no hurry to raise interest rates and he flagged risks to UK growth from external developments.
A number of banks said that after that message from Carney, they expected unemployment and wage numbers this week to be soft. Others point to broader risks from a complicated picture of high external deficits, booming house prices and poor underlying growth with which the bank has struggled over the past few years. "I'm extremely bearish on sterling. I think we're heading towards the $1.30s within the next 4-5 months," said a dealer with one large foreign bank in London. "Carney and the whole BoE message last week has dialled back big time on the rate outlook and I think the current account and Brexit are going to be big problems next year."