Pound firm ahead of US jobs data, unruffled by geopolitics

By Amanda Cooper

LONDON, Sept 4 (Reuters) - The pound held steady on Friday, ahead of monthly U.S. employment data that could be key in setting the pace for the dollar over the coming weeks.

Sterling was last at $1.3525, largely unchanged on the day, following Thursday's 0.3% gain.

Volatility was contained ahead of the release of the August U.S. nonfarm payrolls report later on Friday that could see the dollar get a boost if it beats expectations, or fall further if job growth falls short of expectations.

Bank of England Chief Economist Huw Pill said on Thursday that raising interest rates now would help reduce the chance that the central bank has to be more aggressive in future to tame inflation, which has picked up as a result of the Iran war.

Money markets show traders expect the BoE to raise rates twice in the coming six months. Economists expect the central bank to keep rates unchanged later this month, as it monitors corporate pricing power and wage growth, against the backdrop of high energy prices stemming from the Iran war.

"We remain sceptical that the BoE will be very hawkish given the current supply shocks, rates at 3.75%, amid soft UK labour market conditions and a complex fiscal situation, making us mildly bearish on the pound going forward," BBVA strategists said.

"Nonetheless, the new surge in energy prices could eventually precipitate this recalibration of policy that would reinforce sterling’s supports and underpin its carry appeal, but it should not trigger a major bullish run in the pound as more than two hikes are already priced in."

British businesses expect to increase their prices slightly less quickly in the year ahead, according to a survey published by the BoE on Friday.

On the geopolitical front, Argentine President Javier Milei said in a televised national address on Thursday he would sanction oil companies drilling in the Falkland Islands, the British overseas territory claimed by Argentina, in a move that could escalate tensions with London.

Days earlier, President Donald Trump said he was reviewing the United States' neutral position on the remote archipelago in the South Atlantic.

British defence minister Wes Streeting said in a post on Friday on X: "Our commitment to the Falklands is absolute and unshakeable."

Meanwhile, U.S. Trade Representative Jamieson Greer told the Financial Times in an interview published on Friday that Britain is choosing “Brussels over America,” causing a “problem” for London’s effort to expand its trade deal with Washington.

UK markets showed little sign of stress, however. Benchmark 10-year gilts, which have been swept up in a broad rout that has hit global government debt in the last couple of weeks, were yielding 5.1431%, showing no change on the day so far.  

(Reporting by Amanda Cooper; Editing by Shreya Biswas)