Sterling hits 1-month low vs euro as UK earnings growth slows

By Jemima Kelly

LONDON, Aug 12 (Reuters) - Sterling fell to a one-month trough against a broadly stronger euro on Wednesday after data showed British wage growth slowed more than expected in June, taking some pressure off the Bank of England to raise interest rates.

The BoE is closely watching the labour market as it judges when to raise rates for the first time since the start of the financial crisis in 2008.

The numbers released by the Office for National Statistics showed growth in average weekly earnings in the three months to June slowed to 2.4 percent on the year, from 3.2 percent in the three months to May and well below economists' forecasts of 2.8 percent in a Reuters poll.

Minutes from the BoE's latest monetary policy committee meeting published last week showed just one policymaker voted for an immediate increase in interest rates, defying speculation that at least two MPC (KOSDAQ: 050540.KQ - news) members would vote for a hike.

Sterling fell by over 1 percent on the day against the euro after the data to 71.70 pence, its weakest since July 13.

"The market is now very focused on when the first rate hike will come from the UK, and the labour market and the wages are going to be an important part of that," said Morgan Stanley (Xetra: 885836 - news) 's head of European FX strategy, Ian Stannard. "The market was obviously a bit disappointed after the minutes last week.

"So together with this evidence that things are maybe slowing a little bit, although it is a slowing in the pace of improvement rather than an outright slowing, that could put sterling under a little bit of pressure. For euro/sterling I think there's a chance of a rebound here."

Against the Chinese yuan, the pound gained over 1 percent to hit an 11-month high of 10.0421 yuan, after China pushed its currency lower for a second day running.

Sterling was flat at $1.5575 against a dollar that was trading lower against most currencies, weakened by lower U.S (Other OTC: UBGXF - news) . Treasury yields as well as broad euro strength as investors who had held euro-funded yuan positions bought back the single currency.

"We continue to see markets as under-priced for the possibility of early BoE rate hikes, and would use the current period of euro/sterling strength as an opportunity to build shorts," wrote strategists from BNP Paribas (Xetra: 887771 - news) in a research note. (Editing by Ruth Pitchford)