LONDON (AFX) - Sterling was firmer against all major currencies at midday, boosted by stronger-than-expected labour market data and a benign inflation report, dealers said.
"The February labour market report was a surprise on all fronts, with a pick-up in average earnings growth and a greater-than-expected drop in unemployment putting the claimant count measure at its lowest level for 25 years," Micheal Hume at Lehman Brothers said in a note to clients.
"All in all, these numbers make the possibility of a near term rate cut a lot less likely," he said.
This was echoed by Simon Hayley at Ideaglobal.com.
"The fact that average earnings excluding bonuses were at 4.7 pct will be extremely worrisome for the Bank of England," Hayley said. Although sterling nudged higher following the release of the Bank of England's quarterly inflation report and comments by the Bank's deputy governor Mervyn King, analyst noted that the report as well as the accompanying statement contained little news. "The market was already pricing in a lot of dovish news ..., highlighting that inflationary pressures remain benign. Hence, the inflation report was not massively surprising," said Jesper Dannesboe at Dresdner Kleinwort Wasserstein.
Commenting on remarks by Mervyn King, Hayly said: "You have to bear in mind that Mervyn King has always been one of the more hawkish MPC members ... and market will tend to discount that."
Deputy Governor Mervyn King defended the MPC's failure to cut rates earlier than last week despite persistently low inflation.
The factors affecting inflation, such as oil prices, are subject to great volatility, King said at a press conference after the release of the report into inflation.
Further, sterling was pushed higher by merger and acquisition related activities, dealers noted.
"There is some talk that M&A related transactions are going through sterling against the U.S. dollar, helping sterling to move higher against the U.S. dollar ," a dealer said.
Schlumbergers cash bid for Sema, worth around 2.0 bln eur, also offered sterling support, so did market talk that Orange is going to buy back 7-10 bln eur of its shares from Vodafone, dealers said. Further, usd/yen was undermined by talk suggesting that Japan is going to return to the zero interest-rate policy soon.
"Dollar/yen went down partly because short term speculators are still long and partly on the back of speculation that we might get another rate cut out of Japan soon," Dannesboe said.
However, Bank of Japan governor Masaru Hayami said earlier today: "I have no thought of changing the current 0.25 pct (overnight call rate)unless there is serious deflationary risk."
He added: "Economic downward risk is strengthening but the economy is not in a situation of re-entering a deflationary spiral."
Data on UK earnings showed headline average earnings rose a seasonally-adjusted 4.4 pct year-on-year in the three months to December compared with an unrevised 4.2 pct rise in the three months to November. The AFX News median of analysts' forecasts was for December headline earnings to have risen 4.1 pct year-on-year.
The UK claimant-count jobless total fell by a seasonally adjusted 25,500 in January to 1.005 mln, compared with forecast of a 3,000 fall on the month.
Manufacturing unit wage costs were down 0.2 pct in the three months to December compared with a year earlier, while economists were looking for a 0.5 pct rise.