Sterling rose on Tuesday after strong employment data suggested Britain’s labour market remained robust despite an economic slowdown ahead of Brexit.
The pound jumped 0.3 percent to the day’s high against the dollar and the euro after data showed British workers’ pay growth hit a 10-year high.
But the currency’s gains could be fleeting, analysts said, since the chances of a Bank of England interest rate rise were unlikely to rise on the data due to the risk of a no-deal Brexit.
“The earnings and unemployment figures have been somewhat overshadowed by continued Brexit chaos. Investors are focused on how PM Theresa May will negotiate with the EU over the next few days,” said Tyler Griffin, a currency specialist at OFX.
Sterling firmed on Monday after British Prime Minister Theresa May sought to break a parliamentary deadlock over Brexit by proposing to seek further concessions from the European Union.
Despite the uncertainty, some sterling traders see brighter times ahead for the currency based on growing market confidence that a “no deal” scenario will be avoided.
At 1030 GMT, sterling was up 0.2 percent at $1.2916 . The British currency has traded within a tight range of $1.28-$1.30 for most of January.
Against the euro, the pound traded up 0.3 percent at 87.97 pence.
“The overall probability of a market-friendly Brexit outcome is currently helping sterling,” said Chris Turner, head of foreign exchange strategy at ING in London.
“Yet with the no-deal (Brexit) option still on the table, the probability weighted outcome for EUR/GBP is 89 pence based on our estimate,” he added.
With the clock ticking down to March 29, the date set in law for Brexit, the United Kingdom is in the deepest political crisis in half a century as it grapples with how, or even whether, to exit the European project it joined in 1973.
The pound is trading roughly in the middle of its trading range over the last two years.
Last week, May’s deal suffered a massive defeat in parliament but she won a subsequent vote of confidence by a narrow margin with the backing of the small Northern Irish party that props up her minority government.