Sterling nears $1.28 after surprise UK unemployment drop

LONDON (Reuters) - Sterling briefly rose above $1.28 on Tuesday on a weaker dollar and after an unexpected fall in Britain’s unemployment rate helped a struggling pound move away from 13-month lows plumbed last week.

Britain’s unemployment rate fell to its lowest since 1975 during the second quarter and productivity picked up, official data showed on Tuesday.

However, weaker-than-expected annual wage growth - at a nine-month low of 2.4 percent and below forecasts of 2.5 percent - diluted the positive employment numbers and the pound trimmed its gains.

The Bank of England has previously said it wants to see rising wage growth pressures if it is to speed up its planned rate of monetary policy tightening.

Sterling, trading around $1.2790 before the data was released, extended its gains to as high as $1.2827, away from last week’s 13-month low of $1.2723. It later fell back to around $1.2780 at 0850 GMT.

The pound rose further against the euro, up 0.4 percent at 88.965 pence per euro before trimming those gains.

“Traders have shaken off some of the weakness on the back of the UK’s job data, which shows stability,” said Naeem Aslam, an analyst at Think Markets.

The British currency fell heavily last week after a stronger dollar and concerns about the state of UK negotiations with the European Union over a future trade deal combined to hammer the pound.

The direction of monetary policy following a Bank of England interest rate rise earlier this month has recently taken a backseat against market worries about Brexit.

UK inflation data and retail sales numbers for the month of July are due out this week.

Reporting by Tommy Reggiori Wilkes