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LONDON(Reuters) - Sterling inched down against a stronger dollar on Wednesday, having barely reacted to data showing Britain's jobless rate had fallen to the lowest level in 11 years, with investors focusing instead on the risks surrounding Brexit.
The latest figures showed Britain's unemployment rate fell in the first three months after the Brexit vote to 4.8 percent, though there were some signs that a slowdown in the labour market could be coming.
Sterling traded down 0.2 percent at $1.2435 by 1550 GMT, but up a third of a percent against the euro at 85.825 pence.
"The reaction in sterling remained relatively limited on the news. Nonetheless, we consider these (data) to be encouraging news for the British economy, as the data confirm that the labour market continued to tighten," said IronFX analyst Charalambos Pissouros.
"We remain somewhat optimistic regarding the near-term path of sterling and we believe that the currency could remain supported for a while. However, we would stay careful on whether sterling can remain supported against the U.S. dollar, given the greenback's unstoppable rally."
Politics have dominated on currency markets in recent months and, with Britain's exit from the European Union still shrouded in uncertainty, sterling has become much more sensitive to developments in that process than to economic data.
It has plunged more than 16 percent since Britons voted to leave the European Union in June.
"For now, whilst the domestic politics has gone quiet and the economic data are OK, shorts being covered is probably the more likely scenario for sterling, and it can continue to drift higher on the crosses," said RBC Capital Markets currency strategist Adam Cole.
Data from the Commodity Futures Trading Commission released on Friday showed speculators cut their bets on pound weakness for a fifth straight week, after short positions hit a record high.
Sterling had fallen as much as 1.3 percent against the euro on Tuesday, with losses triggered by a leaked memo suggesting that Britain has no overall plan for leaving the European Union and may take six months to agree one due to divisions in Prime Minister Theresa May's government.
Adding to pressure on the pound was a lower-than-expected inflation reading, which showed price growth still below half of the Bank of England's 2 percent target.
Editing by Raissa Kasolowsky