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Mixed bag for sterling after U.S. jobs shock

By Patrick Graham

LONDON, Oct (HKSE: 3366-OL.HK - news) 2 (Reuters) - Sterling took back all of this week's minimal losses against the dollar after a poor set of U.S (Other OTC: UBGXF - news) . jobs numbers on Friday, but the latest blow to an already weak global growth outlook undermined it against the euro and may do so further next week.

Sterling, along with the greenback, has been the main beneficiary of expectations some of the developed world's big central banks may be able finally to start raising interest rates.

But after the U.S. payrolls numbers argued for the Federal Reserve waiting with any move until 2016, and not December as many have been expecting, pricing for a rise by the Bank of England was also shoved back to the end of next year.


Sterling fell 0.3 percent to 74.12 pence per euro in part on that basis.

"There is every reason for the Bank to stand fast on rates and therefore there is very little downside for the euro against sterling," said Neil Mellor, a strategist with Bank of New York Mellon in London.

"The UK is not rampaging away, there are strong elements to the economy but all the surveys of sentiment are talking about China and the UK and Bank of England can't be impervious to that."

The pound returned to highs against the dollar last seen on Monday, but in general is trading at the bottom end of a range it has held since parliamentary elections in May.

By 1500 GMT it was up 0.5 percent on the day at $1.5204, off a high of $1.5238 seen immediately after the payrolls numbers.

Payrolls outside of farming rose by 142,000 last month, well below a consensus forecast of 203,000 in a Reuters poll, while August figures were revised sharply lower to show only 136,000 jobs added.

Sterling interest rate markets pushed back chances of a first rate rise by the Bank of England to late 2016. Overnight interbank average rates -- the very short-term interest rates that form the basis of lending costs in the wider economy -- priced in a chance of a first rate rise a year from now, having earlier factored in a move in mid-2016.

Dealers said analysts from JP Morgan in a note had pushed back their call for a first BoE rate rise to May of next year from the first quarter. The bank was not immediately willing to issue the report.

French bank Societe Generale (Swiss: 519928.SW - news) , on the other hand, issued a recommendation to buy the pound against the euro, citing the euro zone's still far bleaker economic outlook and the prospect of more quantitative easing to come from the European Central Bank.

"EUR/GBP is trading at the top of the 0.68-0.74 consolidation region in which it has meandered since February," Societe analysts said.

"After a bounce from 0.72 last week, the pair is again facing resistance at 0.7420/40 after two tests in May and August. This week's price action suggests that EUR/GBP could turn down to return within its range." (Editing by Mark Potter)