* Euro at weakest vs sterling since September 2012
* Sterling index hits near six-year high
* UK employment at record high
By Jemima Kelly
LONDON, July 16 The euro fell below 79 pence for
the first time since September 2012 on Wednesday while sterling
hit another near-six year high against a basket of currencies
after data showed UK employment at its highest level ever.
Official data showed the number of people in employment rose
by 254,000 to a record 30.643 million in the three months to
May. The jobless rate fell to 6.5 percent from 6.6 percent a
month earlier, another sign of the recovery in Britain's
But pay growth was weaker than expected, continuing to lag
inflation, underscoring the Bank of England's view that the
recovery can continue without risking a big pickup in price
That disappointment sent the pound to a day's low of $1.7113
immediately after the data but it later recovered slightly and
was last trading at $1.7128, down 0.1 percent on the day
Sterling hit a two-year high of 78.905 pence per euro in
European afternoon trading before weakening slightly
to trade at 78.975, up a quarter of a percent on the day. The
trade-weighted sterling index also hit 89.1, its highest since
"Once the market was able to look into the details of the
overall employment report, the detail was very positive and
provided a lot of evidence that the UK economy is continuing to
strengthen and that strength looks to be fairly broad-based,"
said Ian Stannard, a currency strategist at Morgan Stanley.
The pound had hit an almost six-year high of
$1.7192 on Tuesday after June numbers showed a sharp rise in
inflation to 1.9 percent, within touching distance of the BoE's
2 percent target.
Sterling has been on a bull run for a year now, gaining
almost 15 percent against the dollar and just over 10 percent
against the euro.
The BoE is expected to be the first major western central
bank to raise interest rates. Of its developed world peers, only
New Zealand is currently raising rates and that has underpinned
the pound, particularly against the euro in the past month.
"Sterling is one of the few currencies that has captured the
interest of institutional players in the past few months," said
Benjamin Feuer, head of foreign exchange for EMEA with brokerage
New Edge in London.
"Some of the locals here believe sterling is over-valued but
I think from an international perspective it is pretty fairly
valued. Realistically you probably wouldn't see it above $1.75
but you won't see it weaken either."
British government bonds were little changed on Wednesday,
underperforming German debt for a second consecutive day.
Ten-year gilts' yield spread over Bunds
widened by around 2 basis points to peak at an
eight-day high of 146.2 basis points, while the yield was
unchanged at 2.65 percent at 1410 GMT.
Marc Ostwald, a strategist at ADM Investor Services
International, said that despite weak wage growth figures, the
rest of the labour market data strengthened the case for an
early BoE interest rate rise.
"You're looking at data that says (raise rates) sooner
rather than later," he said, referring to strong growth in
Thursday brings little in the way of new data, but the UK
Debt Management Office is scheduled to sell 3.25 billion pounds
($5.57 billion) of 10-year index-linked gilts.
Ostwald said he expected the issue to get solid demand from
insurers and pension funds which need to buy inflation-linked
bonds to match their liabilities. But otherwise he saw little
attraction in the yield on offer, which offers a return 0.23
percentage points below retail price inflation.
(Additional reporting by Patrick Graham and David Milliken;
Editing by Andrew Heavens)