Sterling gained half a percent against the dollar and rose to its highest in a month versus the euro on Wednesday, aided by a broadly weaker dollar and buoyed by a modest tightening in UK labour market conditions. Average earnings in Britain in the three months to November were at their highest since June 2004 and the number of benefit claimants fell more sharply than expected in December.
But analysts doubted whether the data would make the Bank of England alter its wait-and-see approach to UK interest rates for the foreseeable future.
"Sterling has received another boost today from the labour market data. It's quite interesting that the most recent stream of data we've had from the UK has surprised on the upside and that's been providing sterling with some big support," said Ian Stannard, foreign exchange strategist at BNP Paribas in London.
"And in the current environment, with the dollar coming under pressure, this would leave sterling some scope to extend gains further, maybe up to the $1.90 area over the course of the next few days."
By 1605 GMT, sterling had pared gains but was still 0.5 percent stronger on the day at $1.8760, up from an 8-week low hit earlier this week at around $1.8525.
Against the euro, the pound firmed 0.5 percent on the day to 69.42 pence.
On a trade-weighted basis it gained to 102.3 from late Tuesday's levels of 101.9, its highest level in almost a month.
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