Sterling rose to the day’s highs against the dollar on Wednesday as fears that the U.K. may vote to exit the European Union eased and after data showing that Britain's unemployment rate fell, while pay growth rose in the three months to April.
GBP/USD hit highs of 1.4215, pulling further away from the two-month trough of 1.4090 set on Tuesday.
The pound regained ground as risk appetite recovered and investors turned their attention to the outcome of the Federal Reserve’s meeting later in the day.
The Fed was to conclude its two-day policy meeting later on Wednesday and investors were looking for fresh indications on whether the U.S. central bank still expects to raise interest rates twice this year.
Sterling has weakened across the board in recent sessions after a number of opinion polls showed that the U.K.’s EU referendum race is tightening ahead of the June 23 vote.
Investors fear that a Brexit could trigger a period of uncertainty in financial markets and tip the EU into a recession.
The pound received an additional boost after the Office for National Statistics said Britain’s unemployment rate fell from 5.1% to 5.0% in the three months to April, the lowest level in more than a decade.
Average earnings excluding bonuses rose by 2.3% in the three months to April from a year earlier, compared to expectations for a 2.1% rise and up from 2.2% in the three months to March.
Earnings including bonuses rose by 2.0% on a year-over-year basis, unchanged from the previous three months. Economists had expected growth of 1.7%.
The upbeat data indicated that the labor market is still on a solid footing despite a broader economic slowdown ahead of the Brexit referendum.
The pound extended gains against the euro and yen following the employment data.
EUR/GBP was down 0.34% at 0.7912, while GBP/JPY advanced 0.71% to 150.79, pulling away from Tuesday’s three year lows of 149.17.