Pound rallies as UK jobs data add support amid dollar weakness

Sterling outperformed most of its Group-of-10 peers as the jobs report helped it extend gains made earlier on the back of a weaker dollar. The UK currency has gained 1.7% over the past three days, benefiting from the greenback’s declines and hopes of a so-called soft Brexit as market positioning becomes increasingly pound-bullish.

“It’s the perfect jobs report” from the Bank of England’s perspective, “but markets won’t be quick to read too much into one data point,” said Viraj Patel, a currency strategist at ING Groep.

“For now, this jobs report is good enough for cable to consolidate around the low $1.40s - even if the dollar recovers in the near term.”

Option prices show traders are positioning for further pound strength, with demand for call contracts outweighing that for puts for the first time in nine years last week. Leveraged funds have also turned increasingly bullish on the UK currency, with CFTC data showing net pound longs at 48 051 contracts, the most since August 2015.

The pound gained as much as 0.9% to $1.4119 before trading at $1.4088 as of 11:00, while strengthening 0.3% to 87.59 pence per euro. The yield on UK 10-year government bonds rose three basis points to 1.38% after earlier touching 1.39%, the highest level since October 27.