FX Focus: Pound climbs above $1.25 for the first time since early October

The pound hit a four-week against the dollar on Friday (4 November), building on the previous session's gains and on the latter's recent weakness, sparked by jitters ahead of the US elections next week.

Sterling hit $1.25 earlier in the day, the highest level against the dollar in four weeks, as the UK currency built on the momentum generated on Thursday after the Bank of England revised its growth forecast for 2017 and the High Court ruled MPs will have to vote on whether to trigger Article 50.

By early afternoon, however, it had retreated slightly and was 0.10% higher against the dollar, trading at $1.2473 and 0.29% higher against the euro, exchanging hands at €1.1249.

"Governor [Mark] Carney's press conference left us with the impression that the Bank of England has no interest in weakening the pound further from here," said analysts at Morgan Stanley. "Hence, the pound may trade back to levels witnessed in early August when the base case was a 'soft Brexit'."

Across the Pond, the dollar appeared to overcome a difficult couple of days, despite a somewhat disappointing jobs report. The greenback was 0.06% higher against the euro, trading at €0.9009, and gained 0.29% against its Canadian counterpart, fetching CAD$1.3436. The US currency was, however, broadly unchanged against the yen and the Australian dollar, trading at ¥103.01 and AUD$1.3018 respectively.

Official data showed the US added 161,000 new jobs in October and the unemployment rate fell below 5% again, while the job gains in both August and September were revised higher. The figure, however, was lower than the 175,000 analysts expected.

"The report looks decent, and it's certainly strong enough," said Kit Juckes, chief currency strategist at Société Générale. "It's a good number, and that would typically be good for the dollar, but the election should remain the big driver, and this data could easily get thrown under the bus the next time a poll comes out."

The latest job report also strengthens the case for the US Federal Reserve to hike interest rates next month, although for the time being the minds of traders remain focused on the elections rather than on the Fed.

Hillary Clinton's lead over Donald Trump has quickly evaporated following the new FBI probe into her personal email use, leaving investors fretting about the prospect of Trump replacing Barack Obama at the White House.

However, Joel Kruger, FX strategist at LMAX Exchange suggested the dollar was strong enough to withstand the initial shock that could derive from Trump winning the elections. "The market has been projecting US dollar outflows against the major currencies in the event of a Trump victory," he said.

"The general view is that a Trump victory will force the Fed to reconsider hiking in December, which in turn will weigh on the dollar. But it's also important to remember the dollar is still the choice safe haven currency."