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Pound slips against dollar as US jobs data fuels rate rise bets

The pound was fell against the dollar on Friday. Photo: Matt Cardy/Getty
The pound was fell against the dollar on Friday. Photo: Matt Cardy/Getty

The pound (GBPUSD=X) reversed gains against the dollar, sliding on Friday as traders anticipate further interest rate rises following the US jobs report.

Markets are betting that the Federal Reserve will have to raise interest rates for longer and the Bank of England os expected to follow suit.

Non-farm payrolls increased by 263,000 in September, compared to a consensus estimate of around 250,000, whereas in August hirings rose by 315,000. The unemployment rate came in at 3.5%.

"Those hoping for a Fed pivot have been sorely disappointed with today’s job numbers, which have confirmed that US economy continues to rumble along quite well," Chris Beauchamp, chief market analyst at online trading platform IG said.

"The latest bear market bounce has now begun to wilt as investors wearily return to expectations of at least 125bps of tightening by the end of the year, with more to come in 2023."

Sterling was down 0.5% at $1.111 at the time of writing, and 0.3% lower against the euro (GBPEUR=X) at €1.1381. It also comes as the euro (EURUSD=X) is edging back towards parity with the dollar at 98 cents.

Read more: FTSE and Wall Street fall as US economy adds more jobs than expected

On Wednesday, ratings agency Fitch downgraded the government debt rating to "negative" from "stable" in the wake of the mini-budget.

It warned that the "large and unfunded fiscal package" could lead to a significant increase in the government’s deficits over the medium term.

"The large and unfunded fiscal package announced as part of the new government's growth plan could lead to a significant increase in fiscal deficits over the medium term," Fitch said.

The government plans to borrow £43bn in an effort to boost UK growth.

Fitch also cautioned that Britain's economy will shrink in 2023, despite prime minister Liz Truss and chancellor Kwasi Kwarteng's mini-budget.

The ratings agency expects the general government deficit to reach 7.8% of gross domestic product (GDP) in 2022 and 8.8% next year, and general government debt to jump to 109% of GDP by 2024.

Read more: Interest rate rises only way to tame UK inflation, warns Bank of England deputy governor

The slump in the British pound, spurred by concerns about borrowing costs, has raised fresh fears about the impact on wider markets.

On Friday, new figures from Halifax showed the UK property market is cooling as house prices fell 0.1% last month to average £293,835.

The lender warned that the recent surge in mortgage costs is likely to put more pressure on the market.

Read more: Average UK house price fall to £293,835 as market cools

"Stamp duty cuts, the short supply of homes for sale and a strong labour market all support house prices, the prospect of interest rates continuing to rise sharply amid the cost of living squeeze, plus the impact in recent weeks of higher mortgage borrowing costs on affordability, are likely to exert more significant downward pressure on house prices in the months ahead," Kim Kinnaird, director of Halifax Mortgages said.

Watch: What is a recession and how do we spot one?