LONDON: Sterling rose sharply on Wednesday after a report showed the UK unemployment rate fell more than expected, raising expectations that an interest rate increase will be brought forward.
The euro fell to a one-year low against sterling of 81.81 pence after the report, from 82.26 pence beforehand, leaving it down 0.6 percent on the day. The pound jumped to $1.6553, its highest in almost three weeks, from $1.6464. Volumes rose sharply in both pairs after the data.
The UK's unemployment rate fell to 7.1 percent in November from 7.4 percent. Analysts had been expecting it to fall to 7.3 percent.
The Bank of England said in minutes from its Monetary Policy Committee's latest rate-setting meeting that unemployment would reach its 7 percent threshold, when it will start to consider rate rises, "materially earlier than previously expected". But the Bank also said it saw "no immediate need" to raise rates.
"The fall in unemployment has got the market more excited about raising rates this year," said Jane Foley, a senior currency strategist at Rabobank. "(But) I'd imagine the MPC will push back against that in February, either by playing down the importance of the 7 percent threshold or lowering it."
UK money markets are edging towards pricing in the chance of an interest rate rise in 11 months' time, compared with in a year's time on Tuesday.
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