The dollar touched another 31/2-year high against the mark Thursday before retreating to end mostly lower on surprisingly weak U.S. jobs data and selling ahead of the three-day July 4 weekend. The pound surged for the fourth straight day.
Traders said the British currency was likely to keep strengthening on the widening expectations that interest rates in Britain must rise, perhaps as early as the Bank of England's policy-making meeting next Thursday, to thwart inflationary pressure in the country's vibrant economy. Rising rates tend to enhance a currency's value."The big story is the pound," said Jan Alvarez, senior currency trader at Corestates Bank in Philadelphia. "Everybody's looking for higher rates in Britain. Everybody thinks the pound is a heck of a buy."
Demand for pounds intensified Wednesday after Britain's new Labor government unveiled a budget that was far less austere than expected. A strong rally in the British stock market Thursday further increased the appetite for sterling.
The main force driving the dollar lower was the U.S. Labor Department's report on June employment, which showed the jobless rate rose to 5 percent after falling to 24-year lows of 4.8 percent in May and 4.9 percent in April. Forecasters had expected no change.