LONDON: Sterling edged higher on Wednesday on the back of a broadly struggling dollar as investors waited for key employment data that might boost expectations for more rate increases from an increasingly confident central bank in the coming months.
While financial markets have broadly priced in about a 70 percent chance of a rate hike by May and nearly another increase before the year is out, markets would be keenly watching whether strong employment numbers will decisively swing the case for the Bank of England to signal another hike after a transition deal was struck earlier this week.
In early trades, sterling was up 0.3 percent at $1.4036 but, thanks to a weaker dollar but still remained more than 2 percent below a late-January high of $1.4346, its highest since a Brexit referendum vote in late June 2016.
Morgan Stanley strategists expect a strong labour market report to pave the way for the Bank of England to deliver a hawkish statement on Thursday.
Positioning has swung from being bullish sterling to being broadly neutral in recent weeks, with long sterling bets unwound heavily as markets grew wary about the prospects of a transition deal and lackluster data.
Employment numbers, due at 0930 GMT, are expected to be broadly unchanged from January with the unemployment rate expected to be flat at 4.4 percent according to a Reuters poll.
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