Sterling high as British economy improving

LONDON: Sterling rose to a four-and-a-half month high against a trade-weighted basket of currencies on Wednesday after jobs data added to signs of an improving British economy and dimmed the chances of more monetary easing.

The pound came just shy of a four-month peak against the dollar and hit a three-week high versus the euro, which helped its trade-weighted index rise to 81.6, its strongest since January 24, Bank of England data showed.

Data showed the number of Britons claiming unemployment benefit fell more than expected last month, while wage growth ticked up from weak levels.

This followed figures on Tuesday showing industrial output rose in April for a third month running and solid private sector activity surveys last week which eased concerns Mark Carney, who becomes BoE governor next month, may favour more easing.

"As things stand we're not in a place where QE (quantitative easing) bets need to be heightened," said Richard Driver, analyst at Caxton FX.

"There is enough momentum for sterling to gain a bit more against the dollar, but I think a reversal will come soon," he said, pointing to a relatively better US economic performance.

Sterling was last up 0.1 percent at $1.5660, having earlier hit $1.5683, just shy of last week's peak of $1.5685.

Traders said it faced stiff chart resistance at $1.5702, the 200-day moving average, with offers said around that level as well as an options barrier reported at $1.5700.

The euro dropped to 84.64 pence, its weakest since May 21. More losses could push it towards the early May low of 84.00 pence. It was last down 0.3 percent at 84.79 pence.

"We've had some stronger data out of the UK which gives people a reason to cut back some of their short sterling positions," said Paul Robson, currency strategist at RBS.

He said the dollar may have scope for further falls which could lift the pound towards $1.58. In the second half of the year, however, he expected sterling to fall back towards the mid-$1.40s as the US economic recovery gained steam.

Data has shown speculators built substantial bets on gains in the dollar based on expectations the Federal Reserve would soon reduce monetary easing and on falls in sterling and other major currencies, which they are now starting to trim.