Sterling steady as all eyes turn to US jobs report

[LONDON] Sterling was steady on Friday as investors waited for a key US labour market report that should provide them with clues on when the Federal Reserve will raise US interest rates again.

Regional and local elections, in which Britain's Labour Party suffered losses but looked on track to win the prize of London mayor, had no noticeable impact on the pound.

Instead, the primary medium-term focus for sterling remains the June 23 referendum on Britain's membership of the European Union, with most polls showing the "In" and "Out" campaigns neck-and-neck.

But the main focus on the day is the US non-farm payrolls report, which is expected to show 202,000 jobs added in April after increasing by 215,000 in March.

Investors only see a 13 per cent chance that the Fed will hike in June, according to CME's FedWatch, so analysts reckon the US dollar could strengthen if US data starts to improve, as investors bring forward their rate hike expectations.

"Short cable (sterling/US dollar) would be the preferred vehicle to express a bearish GBP view should US data begin to turn the corner," said ING strategist Viraj Patel.

"The re-pricing in of a material Brexit risk premium, which based on our estimates is still negligible, and pent-up sterling weakness from a more striking deterioration in UK economic fundamentals, would leverage any cable downside stemming from a recovering dollar. We still see scope for sterling to move below US$1.40 ahead of the Brexit vote."

Most economists reckon leaving the EU would deal a blow to the British economy, with a hefty current account deficit - 7 per cent of GDP in the last quarter of last year - leaving it vulnerable to any pull-back in investment flows. Any news that makes a Brexit more likely, therefore, knocks sterling.

Sterling edged down 0.1 per cent on Friday to US$1.4493 , almost three US cents away from a four-month high hit of US$1.4770 on Tuesday.

For the week, the pound is down 0.8 per cent versus the greenback, on track for its first weekly drop in four, having also been hurt by weak purchasing managers' index (PMI) surveys that showed Britain's economy slowed in April.

"The economy could well be on a shaky road ahead of (the) Brexit (vote) in June," said Western Union's UK head of corporate treasury sales, Tobias Davis.

Against the euro, sterling was flat at 78.775 pence.

REUTERS