Sterling bounced off 11-week lows against the dollar on Wednesday, as the US currency's broad rally stalled and after hawkish Bank of England comments took some heat out of UK rate cut talk.
The market largely shrugged off soft UK labour data that showed British claimant count unemployment rose for the eighth month running in September, exceeding expectations.
"It's a dollar story today. Sterling has ignored softer labour data and focused on euro/dollar moves," said Lena Komileva, market economist at Tullet Liberty, adding that unemployment levels were still close to historic lows.
By 1403 GMT, sterling was up a third of a percent against the dollar, having earlier hit an 11-week low at $1.7392. It was steady versus the euro at 68.62 pence.
Weak UK data has raised market expectations that the Bank of England may cut interest rates sooner rather than later, perhaps even as early as November, denting sterling's yield potential. But Bank of England governor Mervyn King said on Wednesday he could not promise an interest rate cut but said the central bank would not make up its mind until it meets in November.
"King is saying don't necessarily be expecting a rate cut next month so there will be some revision of expectations," AIB Group economist Geraldine Concagh said. "But the euro is up against the dollar so the market is quite possibly getting some support from that," she added.
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