LONDON (Reuters) - Sterling fell on Friday and is poised to post its biggest two-day decline in seven weeks after a strong U.S. July payrolls report prompted investors to cut some of their heavy bets against the dollar versus a basket of currencies.
The jobs figure beat expectations of economists polled by Reuters for a gain of 183,000. June's employment gain was revised up to 231,000 from the previously reported 222,000, while average hourly earnings increased 0.3 percent to match expectations after rising 0.2 percent in June.
The dollar's bounce was most notable against the euro, rising 1 percent of the day and washing over to other currencies.
The British pound fell 0.7 percent after the data to $1.3038. Over the past two days it has declined 1.4 percent, its biggest two day losing streak since June. 12, according to Thomson Reuters data.
"Sterling could be pushed towards the $1.30 mark as the outlook for the two countries has changed slightly in the past couple of days," said David Madden, a markets analyst at CMC Markets in London.
Ahead of the U.S. jobs report, sterling was already nursing big losses sustained after the Bank of England kept interest rates at record lows and lowered growth and inflation forecasts.
Before Thursday's central bank vote, sterling briefly rose to a 11-month high of $1.3267 per dollar, rounding off a strong 4.5 percent rise over the last six weeks.
Markets focussed on the Bank of England's lowering of its 2017 growth forecasts to 1.7 percent from 1.9 percent in May, as well as its unexpected reduction of its inflation projections. It now sees inflation at just under 2.6 percent in a year's time after peaking around 3 percent in October.
Against the euro, sterling was a shade stronger at 90.20 pence after falling 0.8 percent on Thursday.
Analysts at ING believe sterling will be driven more by Brexit-related headlines in the coming weeks than expectations of policy changes from the central bank.
Reporting by Saikat Chatterjee; Editing by Angus MacSwan