FX round-up: Pound surges to post-Brexit high on jobs data, softer dollar

The pound was already buoyant in early trade but took another leg higher just after 0930 GMT as data showed UK employment hit a record high in November. According to the Office for National Statistics, total employment increased by 102,000 in the quarter to November to 32.2m, taking the employment rate to 75.3%.

Meanwhile, the unemployment rate held steady at 4.3%, its lowest level since 1975.

However, average wage growth for the three-month period to November was 2.4%, up from 2.3% the month before but below the rate of inflation, meaning that in real terms, pay is still dropping.

The pound briefly traded above 1.4100 against the greenback on the back of the employment data, rising 1% on the day to $1.4118 and the currency is now back at levels seen in early 2016 before the Brexit vote.

David Morrison, senior market analyst at GKFX, pointed out that GBP/USD is trading above the double bottom hit in the first quarter of 2009 at the height of the financial crisis.

"Today’s sharp rally suggests that traders and investors are comfortable in pushing the pound higher. However, the move since the beginning of this year looks overextended and a period of consolidation is overdue.

"However, the euro’s current strength means that the EURGBP is finding support around 0.8750/60 capping sterling’s advance against the euro. This puts the focus on the current dollar downtrend which can take most of the credit for sterling’s recent advance."

Sterling has enjoyed gains recently on the back of hopes of a 'soft' Brexit, but ETX Capital analyst Neil Wilson said that for all the chatter about Brexit and the UK unemployment numbers, "this is very much a soft dollar story".

The dollar Index broke to the downside early on Wednesday and is now trading at a fresh three-year low as it heads towards 89.00. Meanwhile, the EURUSD is closing in on 1.2400 as it trades at a fresh three-year high as IHS Markit's composite flash purchasing managers' index for the eurozone rose to 58.6 in January, marking highest level since June 2006.

The dollar came under further selling pressure after US Treasury Secretary Steve Mnuchin said at a press conference in Davos that a weaker dollar is good for the country's economy "as it relates to trade and opportunities".

Wilson said: "The dollar index has given up the 90 handle and we have the dollar below 110 against the yen for the first time since September and the euro has broken to a fresh three-year high.

"The pound is now well bid above its 50, 100 and 200-day moving averages and with today’s blast above $1.41 seems set to consolidate above $1.40. There is not a huge amount of resistance on the upside for cable. The 50% retracement of the move from $1.71 to $1.19 is at $1.4590. Then we have the $1.4770 May 3rd 2016 high before the all-important $1.5000 level comes back into play. But these seem a long way off and depend entirely on dollar weakness to be sustained."

The pound was also up versus the euro on Wednesday, rising to its best price in nearly seven weeks.