LONDON: Sterling rose to an 18-month high against the euro on Wednesday, after a report on employment that looked encouraging for the UK economy but did not necessarily signal an early rise in interest rates.
The report showed unemployment fell to its lowest since January 2009 and some 345,000 jobs were created in the three months through April. That theoretically bolsters 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 the same employment report showed that pay rose much more slowly in the period from February to April compared with the three months through March, an argument for putting off a rate increase.
Sterling reached 80.54 pence per euro after the report but failed to break out from there.
"There has been some talk of corporate bids around 80.50, but I'm not sure why that would block sterling, really," said a dealer with one bank in London. "Most of the action today has been on the crosses (with other currencies), and that looks just to have halted sterling a bit."
The market showed little impact from a grilling of Bank of England deputy governor Ben Broadbent in Parliament. He said when interest rate rises came they should be gradual.
Britain's increasingly robust recovery has driven a 10 percent gain for the pound in trade-weighted terms over the past year, amid expectations the BoE would be one of 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 topping out, particularly against the dollar, where it has been broadly steady since early February.
"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."
The divergent outlooks for Britain and the euro zone have 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 $1.6791, up 0.2 percent on the day. The euro fell around a third of a percent to 80.60 pence after hitting a new low of 80.54 pence - its lowest since late 2012 - following the labour data.
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