The pound was on track to finish its first trading week of the year on a downbeat note, after losing further ground against the dollar and the euro on Friday (6 January 2017).

By early afternoon, sterling was trading at 0.09% lower against the euro at €1.1691 (£1.00, $1.23) and was down by 0.68% against the dollar, buying $1.2332. According to a Reuters poll, the UK currency could slip even further once the government formally begins the exit process from the European Union at the end of March.

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"In the wake of the very strong UK data the fact that sterling has lagged other currencies slightly against the dollar suggests politics is dominating," said Colin Asher, senior analyst at Mizuho Securities.

"I would expect that to continue probably for most of the year. Sterling will be difficult to predict given the very substantial negative positioning."

Elsewhere, the dollar rallied after official data showed the US economy added less jobs than expected in December, although wages grew at the fastest pace in seven years.

The world's largest economy created 156,000 jobs in December, slightly below 175,000 analysts expected, while November's gains were revised up from 178,000 to 204,000. October's figure, however, was trimmed to 135,000 from 142,000.

Meanwhile, after declining in November, average hourly earnings rose by 0.4% last month, while hourly pay increased by 2.9% year-on-year, marking the fastest 12-month increase since a recovery that began in mid-2009.

Following the report, the dollar surged against its main rivals, gaining 1.11% and 0.61% against the yen and the euro respectively, to trade at ¥116.63 and 0.9488 euro cents. The dollar was also on the front foot against the Swiss Franc and against its Australian counterpart, gaining 0.66% against the former to CHF1.0165 and 0.31% against the latter to AUD$1.3671.

James Hughes, chief market analyst at GKFX, said the dollar reacted in predictable fashion to the non-farm payrolls (NFP) report, initially spiking higher, before reversing to hit new lows and then retrace back to where it started.

"The non-farm payrolls and jobs report no longer hold the same kind of importance that they have held in previous years as traders look towards other data as the more market moving events," he said.

"The payroll will always cause some kind of volatility, but with employment stable the small changes in the monthly NFP and unemployment rates become largely inconsequential."

Craig Erlam, senior analyst at Oanda, indicated the latest figures could see the US Federal Reserve lifting rates again soon, which would hand a fresh boost to the dollar.

"With wages rising and unemployment low though, any stimulus may force the Fed to raise interest rates even more than the three times it has indicated which would lift the dollar further and see Treasury yields continue the move higher," he said.