Sterling strengthens

Sterling edged up from a two-week low against the dollar on Wednesday after mixed data from the UK labour market showed wage growth slowing but the number of people in employment reaching a record high. Though sterling initially dipped after the numbers, it then bounced back to $1.4325, leaving it up 0.1 percent on the day. That still left it around 1.5 percent weaker than at the start of the week, however.
The pound had earlier fallen to as low as $1.4244, with analysts citing worries over a two-day summit starting on Thursday at which British Prime Minister David Cameron will meet European Union leaders to try to secure more favourable terms for Britain's membership of the EU. Wednesday's data showed annual wage growth slowed as expected to 1.9 percent, its lowest since February. But Britain's unemployment rate remained unchanged at its lowest in almost a decade, while the number of people in employment rose to a record high of 31.42 million.
"Sterling has taken the data reasonably well, which doesn't seem unreasonable given that they were a pretty decent data set across the board," said RBC Capital Markets' head of FX strategy, Adam Cole. "(The labour market) is probably accelerating in underlying terms, and that's the most important criterion for the Bank of England," he said. "We still think we're overpriced for the risk of lower rates."
Sterling has fallen around 6 percent against the dollar since mid-December as investors have pushed back their bets on BoE rate rises to around 2020 and have moved to price in the chance of a cut in rates over the next year. Consumers's expectations have also shifted: a survey of households showed on Wednesday that the number of Britons who expect the BoE to raise interest rates over the next 12 months has fallen to its lowest in more than two years.
The pound has fallen against the euro, too, hitting a 14-month trough of 78.975 pence last week, but it was a third of a percent up on the day on Wednesday at 77.685 pence. Analysts say sterling could be knocked dramatically if Britons vote to leave in a referendum that could come as soon as June. Goldman Sachs has said the currency could fall as much as 15-20 percent, and ratings agency Standard & Poor's has said a Brexit could hurt the pound's role as a global reserve currency. "If everything goes according to (Cameron's) plans he may be able to announce by the end of the week the date for the referendum," wrote Commerzbank strategists in a note. "It is difficult to determine whether that would be good or bad for sterling and...that is unlikely to change until the day of the referendum. As a result the fluctuations of sterling exchange rates are going to remain pronounced until then."