Sterling and the euro fell on Friday as a firmer-than-expected U.S. jobs report strengthened expectations that the Federal Reserve will maintain higher interest rates for an extended period, prompting renewed demand for the dollar across currency markets.
At 08:55 ET (12:55 GMT), GBP/USD was down 0.11% at 1.3413, while EUR/USD had slipped 0.14% to 1.1594. Both pairs were pressured by the dollar's pickup in momentum following another resilient reading from the U.S. labour market.
Market-moving data took the form of the May non-farm payrolls report, which recorded an increase of 172,000 jobs, roughly double the market's expectation of about 85,000. The headline figure was reinforced by a sizeable upward revision to April's payrolls, which were revised from 115,000 to 179,000, signalling that hiring momentum has been stronger than investors had anticipated.
Alongside the payrolls numbers, the unemployment rate remained unchanged at 4.3% and the labour force participation rate held steady at 61.8%, pointing to broadly stable labour market conditions despite concerns that economic growth could decelerate later in the year.
Wage metrics provided some moderation on the inflation front. Average hourly earnings rose 0.3% month-on-month following a 0.2% increase in April, while annual wage growth eased to 3.4% from 3.6%. Nevertheless, the mix of robust hiring, stable unemployment and still-solid wage gains is unlikely to materially alter a hawkish Federal Reserve policy stance.
Geopolitical developments remained a secondary driver for currencies. Uncertainty around U.S.-Iran negotiations continued to underpin cautious market sentiment, while oil prices stayed relatively subdued compared with previous periods of heightened Middle East tensions. ING analysts noted that the lack of a pronounced oil price spike had limited the dollar's potential upside, preventing an even stronger advance despite supportive macroeconomic data.
For EUR/USD, the pair traded near the lower end of its recent 1.1600-1.1650 range, with 1.1600 viewed by market participants as an important support level. Analysts cited the stronger U.S. economic data and widening interest-rate differentials as factors that leave downside risks for the euro skewed.
Markets are also focused on the European Central Bank meeting scheduled for next week, where a 25-basis-point rate increase is widely expected. Anticipation of policy tightening from the ECB is a material factor for euro trading dynamics heading into that decision.
Sterling remains vulnerable amid signs of slowing activity in the UK economy, which have reduced the likelihood of further Bank of England tightening. That shift in domestic expectations, combined with stronger U.S. data and an expanding policy divergence between the Federal Reserve and the Bank of England, has left the pound exposed to continued dollar strength.
On a weekly basis, sterling was set to record a modest loss against the dollar as resilient U.S. economic indicators and prospects for a higher-for-longer Fed continued to outweigh domestic UK considerations and lend support to the greenback.
In summary, the stronger-than-expected U.S. labour market report has reinforced a dollar-positive backdrop, pressuring both sterling and the euro as markets position for prolonged Fed policy accommodation relative to other major central banks. Attention now turns to the ECB decision next week and any further signals on the trajectory of monetary policy in both the United States and Europe.