LONDON: Sterling nudged up to a new 18-month high against the euro on Wednesday after a labour report that carried substantial positives for the UK economy but did not necessarily encourage an early rise in interest rates.
The report showed unemployment falling to its lowest since January 2009 along with the creation of some 345,000 jobs, theoretically adding to the case for the Bank of England to raise interest rates in the first half of next year or earlier.
But the BoE has been at pains to cool expectations of swift action on rates and a sharp fall in pay growth was both good news for those arguing for the bank to hold fire as long as possible and possibly a positive sign on the UK's recovery.
"They are amazing labour numbers really. Not just do we have jobs growth but it is in full-time rather than part-time and at the same time the pricing power of labour is clearly weak," said Paul Robson, a strategist with RBS in London.
"People will initially see it as possibly bringing forward a rate rise so sterling is going a bit higher against the euro. But I think as people begin to digest that low wage growth we may see it come back a bit."
Britain's increasingly robust recovery is at the heart of a 10-percent gain for the pound in trade-weighted terms over the past year, driving expectations that the Bank of England would be among the first major central banks to raise official returns on its currency.
But with inflation below target, and the recovery largely linked to a housing market that might take fright at a rise in rates, the bank also has every reason to hold fire.
Other economic signs this week have been positive but many in the market feel sterling is beginning to top out, particularly against the dollar, where it has been broadly steady since early February.
The BoE's new deputy governor Ben Broadbent will be grilled by parliament's treasury committee later on Wednesday.
"The outlook is so balanced (for the pound) right at the moment that there's very little in it," said a dealer with a bank in London.
"If sterling goes anywhere higher than it is against the euro and that's what we are seeing this morning."
The divergent outlooks for Britain and the euro zone has pushed the spread between British and German 10-year government bond yields to its widest since 1997. Lower short-term money market rates are also weighing on the single currency.
Sterling last traded at $1.6794, up 0.2 percent on the day. The euro fell a third of a percent to 80.54 pence - its lowest since late 2012.
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