"It does make us more comfortable in our forecast of an above-consensus payroll print tomorrow" - Pantheon Macroeconomics.

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A rallying Dollar drove the Pound back near to its lowest levels since late November in the penultimate session of the week after better-than-expected U.S. economic data and hawkish commentary from Federal Reserve (Fed) rate setters turned the New Year tide in favour of the greenback.

Dollars were bought widely and the Pound was sold heavily on Thursday as Federal Reserve officials reiterated the increasingly hawkish monetary policy position adopted in December just as financial markets were digesting U.S. employment and trade data that came in stronger than was expected.

Most notably, the Automatic Data Processing Inc (ADP) measure of non-farm payrolls rose by 235k for December, building on an upwardly-revised prior increase of 182k when economists had expected a lesser 152k reading.

That data emerged just as the Department of Labor reported new unemployment claims of 204k for last week, down from 223k previously and lower than the 230k anticipated by economists.

"The buoyancy of nonfarm payroll growth has seemed at odds with other signs that the jobs market is beginning to sour," says Sarah House, an economist at Wells Fargo, while writing in a review of the data.

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"A holistic look at the data suggests that directionally the labor market is weakening, but at a measured pace and from a remarkably strong starting point. Not only do signals of demand remain strong on an absolute basis, but job switching remains elevated and the unemployment rate remains exceptionally low at 3.7%," she adds.

Thursday's figures are a curtain raiser for Friday's official non-farm payrolls report for which consensus among economists favours a 200k increase in employment, which would be down from 263k in November and the weakest number since December 2021.

Despite the ebbing momentum in the labour market, a 200k increase in non-farm payrolls would typically be considered a robust number so is unlikely to discourage Fed officials from the view that demand for workers is too high if the bank is to meet its 2% inflation target any time soon.

"It does make us more comfortable in our forecast of an above-consensus payroll print tomorrow. We are nudging up our estimate to 275K from 250K; the consensus is 200K," says Ian Shepherdson, chief economist at Pantheon Macroeconomics, in reference to the ADP data.

Thursday's employment figures came alongside Bureau of Economic Analysis figures showing the U.S. trade in goods and serices deficit shrinking to its smallest level in November since June 2020 after imports fell more heavily than exports during the recent month.

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Thursday's data came as Kansas Fed President Esther George and Atlanta Fed President Raphael Bostic warned that U.S. interest rates have further to rise and are not likely to be reduced any time soon.

"I’ll be over 5% and I see staying there for some time, again until we get the signal that inflation is really convincingly starting to fall back toward our 2% goal," George told CNBC's Steve Liesman before acknowledging there is a risk of a recession in the U.S. later this year.

Meanwhile, Raphael Bostic reportedly told the Federal Reserve Day Ahead Conference on Financial Markets and Institutions that investors and traders may be underestimating how far the Federal Open Market Committee is willing to go in order to bring inflation back to the 2% target.

U.S. inflation fell to 7.1% in November and 6% after energy and food price changes are set aside while most FOMC members coalesced around the view in December's policy meeting that a period of suppressed economic activity will be necessary to drive it back to two percent.

"With inflation remaining unacceptably high, participants expected that a sustained period of below-trend real GDP growth would be needed to bring aggregate supply and aggregate demand into better balance and thereby reduce inflationary pressures," minutes of the meeting revealed Wednesday.

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