LONDON: Sterling rose on Wednesday, hitting its highest in two weeks against a basket of currencies and the euro after better than feared UK jobs data and Bank of England minutes that showed policymakers did not discuss an interest rate cut.
Gains were expected to be limited, however, due to worries about the fragility of the UK economy, which is stuck in recession, and prospects of the BoE opting for more monetary easing in coming months.
The pound's trade-weighted index rose to 84.3, its strongest since July 31, BoE data showed, lifted mainly by gains against the euro.
The euro fell 0.4 percent to 78.24 pence, matching a low hit on Aug. 2 after it broke below chart support at its 21-day moving average of 78.49 pence.
Data showed the number of Britons out of work at its lowest level in nearly a year in the three months to June, though analysts and traders cautioned this might be down to short-term gains from the London Olympics.
"Sterling got a temporary boost after the slightly better jobs data, but that could just be skewed by the Olympics," said Richard Wiltshire, chief FX Broker at ETX Capital.
"The MPC (BoE Monetary Policy Committee) seems to be sitting on the fence, hoping that data will show the way forward. It looks like a rate cut is not on the agenda but more QE is possible."
The minutes showed policymakers discussed whether to step up the bank's asset purchase programme, known as quantitative easing, after a run of poor data.
QE is seen as negative for the pound as it involves the central bank flooding the market with the currency.
Traders also cited talk of euro selling by a European central bank that has been diversifying its reserves into Swedish crowns and British pounds.
LIMITED IMPACT
Analysts said the market's main focus remained on whether the European Central Bank will act next month to lower Spanish and Italian borrowing costs to help ease the debt crisis, a factor that should limit the euro's falls in coming days.
"In thin trade, small bits of news can have some impact, but otherwise the market is waiting to see what the ECB does ... Really we are range trading, sterling is not breaking new ground," said Alex Lawson, senior dealer at Moneycorp.
He expected the euro to stay in the range between around 77.90 and 79.65 pence that it has traded in since late July.
Sterling's gains against the dollar after the data and the BoE minutes were also fleeting.
It was last up 0.1 percent at $1.5682, having earlier risen to $1.5700. It remained stuck below strong chart resistance at its 200-day moving average of $1.5719 and Tuesday's two-week high of $1.5730.
Analysts and traders said concerns about the UK economy continue to leave investors wary of buying the pound.
Figures last month showed the economy shrank 0.7 percent in the second quarter, its third consecutive quarterly contraction, and surveys since then have pointed to a poor start to the second half of the year.
The BoE also expressed concerns about sterling's recent rise against the euro in the minutes, saying its gradual appreciation weakens the prospects for UK rebalancing towards net exports.
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