Updated June 11, 2014 12:34 p.m. ET
Sterling pushed higher Wednesday, buoyed by upbeat labor data showing the country's economic recovery is gathering steam, which, in turn, boosted expectations that the Bank of England would raise interest rates sooner than initially expected.
The pound shot to an 18-month high against the euro, which sank to £0.8055, while sterling also climbed to the day's high of $1.6797 against the dollar.
Official data showed that the jobless rate fell to a five-year low of 6.6% in the three months to April.
The labor market "has recovered significantly faster than previously anticipated by the Bank of England," Mizuho chief economist Riccardo Barbieri said in a note to clients, adding that industrial production figures also indicate that the country is firmly on the path to recovery.
Data released Tuesday showed that U.K. industrial output grew at its fastest annual pace for three years in April.
Citigroup strategists pointed out, however, that in terms of concrete signs of timing for the first rate increase, the BOE's Monetary Policy Committee minutes scheduled for release on June 18 will be key.
Elsewhere, commodity markets remained in focus Wednesday after Islamist insurgents seized control of Iraq's second-largest city. Prime Minister Nouri al-Maliki declared a nationwide "state of maximum preparedness" after government forces fled Mosul in disarray after four days of fighting.
The market reaction has been muted so far, with Brent crude rising by 0.4% a barrel to $109.92, but economists warn the impact could become more severe.
"The stakes are high for the oil market as the security situation in Iraq has taken a sharp turn for the worse," Barclays economists wrote in a note.
The euro edged marginally lower Wednesday, as the interest rate gap between the euro zone and the rest of the world looks set to keep widening.
Lee Hardman, an economist at Bank of Tokyo-Mitsubishi UFJ, said that he expects downward pressure on the euro to gradually build in the year ahead as the Bank of England and the Federal Reserve move closer to raising rates, while the European Central Bank may need to ease monetary policy further.
The euro was trading at $1.3533 as European equity markets closed.
Stocks, meanwhile, fell back from six-year highs Wednesday, with investors consolidating gains at the end of a three-week rally, after the World Bank on Tuesday cut its 2014 global growth estimate to 2.8% from 3.2%.
The bank cited a harsh winter in the U.S. along with the Ukraine conflict as reasons for its move, but said that growth in the U.S. and Europe would still likely accelerate this year, as the effect of government spending cuts recedes, labor markets improve, and pent-up demand starts to flow through high-income economies.
The Stoxx Europe 600 closed 0.6% lower, while the U.K.'s FTSE 100 lost 0 .5%, and Germany's DAX dropped 0.8%. France's CAC 40 shed 0.9% ,dragged down by steel pipe maker Vallourec VK.FR -11.27% Vallourec S.A. France: Paris €35.00 -4.45 -11.27% June 11, 2014 5:37 pm Volume : 5.82M P/E Ratio 15.70 Market Cap €5.06 Billion Dividend Yield 1.95% Rev. per Employee €245,963 06/11/14 Data Showing Strong U.K. Recov... More quote details and news » which lost more than 12% after the company said it expected core profit to decline 10% this year, as customers run down inventories to save money.
Shares of German airline Lufthansa LHA.XE -14.19% Deutsche Lufthansa AG Germany: Xetra €17.09 -2.83 -14.19% June 11, 2014 5:35 pm Volume : 25.75M P/E Ratio 15.25 Market Cap €9.18 Billion Dividend Yield 2.63% Rev. per Employee €252,610 06/11/14 HEARD ON THE STREET: Lufthansa... 06/11/14 Data Showing Strong U.K. Recov... 06/11/14 Lufthansa Shares Fall After Pr... More quote details and news » also sank, after it warned that profits would be lower than forecast this year, hurt by labor union strikes and weaker- than-expected revenue growth in its passenger and cargo businesses.
Write to Josie Cox at josie.cox@wsj.com and Tommy Stubbington at tommy.stubbington@wsj.com
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