Sterling climbs vs euro after UK data, Fed awaited

LONDON: Sterling rose against the euro on Wednesday, helped by signs of accelerating income earnings, but there was little to alter expectations that British interest rates will stay anchored near record lows until the second half of 2015.

That saw the pound weaken against the dollar, with more losses likely against the U.S. currency if the Federal Reserve drops its use of the phrase "considerable time" with reference to current rates after it concludes a policy meeting later in the day.

It would imply that rate hikes were likely in the middle of next year, much before the Bank of England is expected to move, giving a boost to U.S. yields and the dollar. The yield gap between two-year U.S. Treasuries and British gilts were near their highest in two years, Reuters data showed.

The euro was down 0.2 percent against the pound at 79.24 pence, while against the dollar, the pound was down 0.2 percent at $1.5715. Sterling had hit a three-week high of $1.5785 on Tuesday getting a boost from BoE Governor Mark Carney's comments playing down data showing UK inflation fell to a 12-year low in November.

British average weekly earnings, excluding bonuses rose 1.8 percent compared with the same month last year, the same rate as in September. Inflation in October stood at 1.3 percent. Data released on Tuesday showed the consumer price index fell to 1.0 percent in November, its lowest level in more than 12 years.

Official data also showed the unemployment rate remained unchanged at 6.0 percent in the three months to October, matching its lowest level in six years but slightly above a forecast of 5.9 percent in a Reuters poll.

"The wages data is positive for sterling, but for most traders the focus is on the Federal Reserve. They do not want to move much ahead of that," said Nawaz Ali, analyst at Western Union.

Minutes from the latest BoE Monetary Policy Committee (MPC) meeting showed that they focused largely on falling oil prices and the majority who have been voting to keep interest rates on hold appeared slightly more united. Two members, out of the nine-member committee, continued to vote for rate hikes.

"On balance, this points toward a status-quo MPC vote tally, which seems unlikely to yield a strong response from the pound," said Ilya Spivak, currency strategist, at DailyFX.