Sterling failed to push higher after rising to its strongest since late 2008 against a basket of currencies on Thursday, finishing around 0.1 percent higher on a day thinned out by the long Easter weekend. After a 10 percent surge over 12 months on a trade-weighted basis, the pound had stalled in the past six weeks as doubts over the structure of improving economic growth crept in.
The return of real wage growth and another sharp fall in unemployment, reported on Wednesday, have done much to ease those nerves and bolster expectations the Bank of England will have to raise interest rates in the first half of next year.
"For the past three months we've been stuck in a range on a trade-weighted basis and it's only now that we're beginning to see the pound reach out higher," said Peter Kinsella, a strategist with Commerzbank in London.
"The broad picture for sterling is pretty constructive." Against a basket of currencies, half of which is its rate to the euro, sterling was set by the Bank of England at 86.5 early on Thursday, its highest since the financial crisis was in full swing at the end of 2008. It had inched back to 86.4 by 1500 GMT.
The pound also hit a 4-1/2 year high against the dollar of $1.6842 before retreating. "It just didn't have the strength to get there this morning and then I think a lot of people were just walking away," said a dealer with one bank in London. "That doesn't rule out another push next week. All of the economic news is still behind sterling." By late in the European day, the currency had gained 0.1 percent at $1.6809 and 82.27 pence per euro respectively.
Expectations the BoE will have to move in the first half of next year also contrast with the European Central Bank, which has been inching closer to outright money printing to support the euro zone economy. "The pound's uptrend is intact," analysts from South African bank Investec said in a morning note to clients. "With the pound still on a charge, any easing of policy by the ECB next month could likely see it print new highs on the year against the euro."
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