Pound Jumps Against Dollar as U.S. Payrolls Push Back Rate Bets

  • Forward contracts signal no U.K. rate increase until end-2016
  • U.K. 10-year bond yield slides to lowest since April

The pound rebounded from a five-month low against the dollar as a U.S. Labor Department report showed employers added fewer jobs in September than analysts forecast, damping speculation the Federal Reserve could raise interest rates by year-end.

Sterling posted a weekly decline versus the euro as investors bet a delay by U.S. policy makers would keep the Bank of England’s key rate at a record low for longer. U.K. government bonds climbed, pushing the 10-year gilt yield to a five-month low.

“This was a soft U.S. report in all respects and the pound has justifiably strengthened against a generally retreating dollar,” said Daragh Maher, head of foreign-exchange strategy at HSBC Holdings Plc in New York. “It has not capitalized as much as others, notably the euro and the yen, and I suspect this reflects the difficulties sterling has faced recently alongside retreating U.K. rate-hike expectations.”

The pound rose 0.6 percent to $1.5221 as of 4:32 p.m. London time, after slumping to $1.5108 Thursday, which matched the lowest level since May. Sterling was little changed at 74.05 pence per euro, leaving it 0.3 percent weaker from Sept. 25.

Benchmark 10-year gilt yields dropped four basis points, or 0.04 percentage point, to 1.70 percent, after touching 1.65 percent, the lowest since April 27.

Employers in the world’s largest economy added 142,000 workers last month, compared with a revised 136,000 in August. The median forecast in a Bloomberg survey of economists was 201,000.

Construction Climbs

Sterling also appreciated after a report based on a survey of purchasing managers showed U.K. housebuilding expanded at the fastest pace in a year last month, giving another sign the economy is gaining momentum.

Markit Economics said Friday that its Purchasing Managers’ Index for residential building increased to 62.1 from 59 in August. A gauge for total construction rose to 59.9, the most since February and higher than economists’ prediction of 57.5. A figure above 50 signaling expansion.

Even so, forward contracts based on the sterling overnight index average, or Sonia, suggest that a full 25 basis-point increase to the BOE’s 0.5 percent main rate will not come until after November 2016.

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