Surprise American job losses hit dollar

The pound surged by more than a cent and a half against the dollar yesterday after figures showed that the American economy shed jobs last month for the first time in more than four years.

The pound surged by more than a cent and a half against the dollar yesterday after figures showed that the American economy shed jobs last month for the first time in more than four years.

The dollar fell against a basket of currencies as the prospect of a hike in US interest rates by the Federal Reserve later this month receded. The pound also made gains against the euro, bringing more misery for UK exporters.

By the close of London trading the pound was up 1.56 cents at $1.5061, its highest for a week. Against the euro, sterling rose as high as 60.07p, its strongest in 11 weeks and almost a penny stronger than before the Bank of England's decision on Thursday to leave interest rates on hold.

Nick Stamenkovic, senior bonds analyst at IDEAglobal.com, said: "There is a growing perception that UK rates could still go up but the Fed will stay pat, so the pound will strengthen further." He said the next key event was the publication of the Bank of England's Inflation Report next week, which will be scoured for hints that it is preparing for a rate hike in September.

A total of 108,000 US jobs were lost in July, the first time since January 1996 that the booming economy failed to generate more jobs. This compared with a gain of 30,000 jobs in June. The drop was in stark contrast to near-60,000 gain analysts had expected.

The private sector did create 138,000 jobs, compared with 242,000 in June, but that was overshadowed by the departure of 290,000 temporary staff hired for the once-a-decade census.

There was a slightly stronger than expected pick-up in wage growth. Wages were up by 0.4 per cent in July to $13.76 an hour, in contrast to forecasts of a 0.3 per cent increase. The Federal Reserve has been concerned that tight job markets would fuel inflationary wage and price increases.