THE pound rocketed through dollars-1.90 yesterday to a 15-month high of dollars-1.9129, as figures showing anaemic employment growth in the US depressed the dollar by increasing the chances of a pause in interest rate rises in the world's largest economy.
Sterling's continued surge was also a result of the Bank of England's unexpected quarterpoint rise in UK base rates to 4.75-per cent on Thursday.
The pound was last night trading around dollars-1.9090 - up another two cents on its close in London on Thursday - having hit an intra-day high of dollars-1.9129.
Sterling hit an eight-and-ahalf-month high against the euro. The single currency was last night down about a quarterpenny on the session around 67.50p, having touched 67.43p.
The UK's FTSE-100 index of leading shares rose by 51.0 points to 5889.4, helped partly by the increased prospects that the Federal Reserve would pause its thus-far relentless programme of interest rate rises when it meets next Tuesday. The Footsie had tumbled 93.7 points on Thursday in the wake of the unexpected UK rate rise.
New York's Dow Jones Industrial Average rose initially in the wake of the employment numbers on hopes of a Fed rate pause, but later fell into negative territory as worries about weakening US growth came to the fore. It closed 2.24 points down at 11,240.35.
The US central bank's Federal Open Market Committee has raised its benchmark Fed funds rate by a quarter-point at every one of its 17 meetings since June 2004 to take it to 5.25-per cent.
Figures yesterday from the Labour Department showed US non-farm payrolls rose by 113,000 in July - much less than Wall Street's 142,000 prediction. The unemployment rate rose from 4.6-per cent in June to 4.8-per cent - defying predictions of an unchanged position.
A poll of primary bond dealers published by news agency Reuters, after the employment numbers, showed 17 of 22 now expect the Fed to pause in August.
In the immediate wake of the payrolls, US interest rate futures had slashed the chances of a rise in rates on August 8 to less than 20-per cent, from 43-per cent overnight.
However, even though most bond dealers saw a pause, a majority also saw the Fed having to move rates up further at some point. Only seven of 22 predicted the Fed was done raising rates.
Andrew McLaughlin, chief economist at Royal Bank of Scotland, this week reiterated a forecast the bank has had since 2002 that the Fed funds rate would peak at 5.5-per cent. He said: "If it (a rise) doesn't come in August, our view is still it will come sometime this year."
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