LONDON: Sterling jumped above $1.41 on Wednesday after strong British employment data helped the pound extend a recent rally driven by growing optimism that Britain will have a relatively smooth exit from the European Union amid broad dollar weakness.
The pound, up as much as 1.2 percent on Wednesday, is on track for its best month against the US currency since the middle of 2010. Over the past week sterling has notched up a series of fresh highs since the vote to exit the EU in June 2016 sent the pound tumbling.
The British currency also climbed against the euro, hitting its best level in six weeks.
Market analysts said the labour data had helped sterling, although dollar weakness and broader positive sentiment for the pound were also behind Wednesday's gains.
Official data showed that UK employment surged to a record high and regular wages rose at their fastest rate in almost a year.
"The pound was already doing quite well. There's momentum in that and the data adds to this," said Bilal Hafeez, macro strategist at Nomura in London.
The British currency rose as high as $1.4165 in the hours after the employment data. The pound increased to as much as 87.115 pence per euro.
Brexit minister David Davis said on Wednesday that he expects Britain and the European Union will agree to a transition deal on exiting the bloc by the end of March.
With traders believing that the risks of a disorderly exit from the EU are receding, investors are looking for signs the Bank of England could hike interest rates more than the single raise this year that the market has currently priced.
Interest rate expectations moved up slightly after Wednesday's employment data, analysts said, given the BoE is watching for signs of pay growth before raising rates again.
"The labour data was positive. But it's not good enough to suggest wage developments are putting upside pressure on inflation," said Manuel Oliveri, an FX strategist at Credit Agricole.
British government bond prices extended their fall after the data and the internationally-focused FTSE 100 was down 0.5 percent at a session low before paring back some of those losses.
"Certainly dollar weakness is a part of this move higher. But this is also a story of sterling resilience," said Jane Foley, London-based FX strategist at Rabobank.
Against the currencies of its biggest trading partners, sterling is at its highest level since mid-2017, but remains far below levels seen before the Brexit vote.
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