LONDON: Sterling inched higher on Wednesday on a busy day for the UK economy and government policy, which holds the risk of a break lower for a currency that increasingly looks to have peaked for now.
The pound, the biggest gainer among developed world currencies in the second half of last year, hit a three-month low against the euro on Tuesday, hit by talk of outflows to pay for a European acquisition by British telecoms group Vodafone.
More generally, many economists say all of the prospective improvement in Britain's economic outlook, and a rise in interest rates early next year that the market expects will follow, are priced in to the currency.
An upward revision in growth forecasts with finance minister George Osborne's 2014 budget on Wednesday is unlikely to fuel further optimism. Rather, many economists were focused on the risks of another slight rise in unemployment in January.
"The easiest thing today for the market to react to is the labour market," said Daragh Maher, strategist with HSBC in London. "If we were to get a figure of 7.3 percent, just a touch above forecast that would obviously hurt the pound."
Sterling gained just under 0.2 percent to $1.6620 and 0.3 percent against the euro to 83.70 pence in early trade.
The jobless rate, whose 1 percentage point slide over the past two years economists have struggled to explain in light of falling business investment, rose to 7.2 percent in December. Consensus is for it to remain flat on Wednesday.
Many in the market saw a hawkish tint in Bank of England Governor Mark Carney's comments on the bank's forward guidance that interest rates would stay ultra-low for some time in a speech on Tuesday, helping the pound in early trade.
BoE meeting minutes, also published on Wednesday, may shed more light on divisions on its policy committee over the amount of slack still left in the economy.
Carney had previously appeared to be among those seeing some way to go.
Wages growth data released with the jobs numbers may also illuminate that debate.
"Were wages to start rising, as surveys suggest, the amount of slack might be less than the BoE believes and the market could bring forward (expectations for interest rate) tightening," said Chris Turner, analyst with Dutch bank ING in London. "Cable could make a bid towards 1.67."
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