April 6, 2018 / 4:32 PM / 9 months ago

Sterling climbs after dollar drops on trade dispute, jobs data

LONDON (Reuters) - The pound gained on Friday as the dollar fell after weaker-than-expected data on U.S. job creation and renewed worries about China’s reaction to the threat by U.S. President Donald Trump of further tariffs on Chinese goods.

British five pound banknotes are seen in this picture illustration taken November 14, 2017. REUTERS/Benoit Tessier/Illustration

The greenback slid against the safe-haven yen and Swiss franc after China threatened to launch fresh trade measures if the United States followed through on a threat to impose $100 billion in additional tariffs.

Sterling rose 0.6 percent against the dollar to $1.4107, its highest level since March 28 before falling back to $1.4090.

The bulk of the gains came after a report showing the U.S. economy in March created the fewest jobs in six months. The dollar fell against most major currencies.

“This is a story of dollar weakness; tension between the world’s two largest economies keeps rising and that is hurting global growth and the dollar,” said Ronnie Chopra, chief market strategist at Knightsbridge Trading Academy.

Against the euro, the pound strengthened 0.3 percent to 87.10 pence.

The pound has rallied since Britain last month secured a transition deal to cover the 21-month period after it leaves the European Union, and the Bank of England confirmed a policy of monetary tightening would be sooner rather than later.

Sterling forecasts are at their highest since Britons voted in 2016 to leave the European Union, a Reuters poll found on Friday.

That is because of optimism driven by progress in divorce talks and expectations of another Bank of England interest rate hike next month.

But some analysts say uncertainties over Brexit remain and that broad dollar weakness - linked to the trade dispute between the U.S. and China - is keeping sterling above $1.40.

“A lot of good news is already factored in. Brexit remains a can of worms,” said Chopra.

He added that the UK economy would need to perform well and Brexit talks progress meaningfully for the pound to get above $1.45 this year.

Other analysts also caution about getting too positive on the pound.

“With the most challenging issue over Northern Ireland remaining unresolved, we view the balance of risks as increasingly negative,” Hans Redeker, global head of currency strategy at Morgan Stanley, said in a note.

Traders this week largely shrugged off disappointing survey data and searched instead for more meaningful signs of economic weakness that could deter the BoE from its path of monetary tightening.

A survey on Thursday showed the IHS Markit/CIPS services Purchasing Managers’ Index (PMI) tumbling to a worse-than-expected 51.7 from February’s reading of 54.5 because of weak consumer demand and bad weather, which did appear to weigh on the currency.

Graphic: World FX rates in 2018 tmsnrt.rs/2egbfVh

Graphic: Trade-weighted sterling since Brexit vote tmsnrt.rs/2hwV9Hv

Editing by Matthew Mpoke Bigg

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