LONDON (Reuters) - Sterling strengthened on Wednesday as all eyes turned to a policy decision by the U.S. Federal Reserve, with comments from Britain's Brexit Minister bolstering expectations that Britain will keep access to the single market when it leaves the EU.
The pound appeared largely unmoved by data released earlier on Wednesday that showed the first decline in the number of people in work in Britain in over a year, suggesting a slowing in the labour market after June's vote for Brexit.
It climbed to as high as $1.2721 in afternoon trade as Brexit Minister David Davis spoke to a committee of lawmakers in parliament. By 1700 GMT it has eased to around $1.2716, still leaving it up around half a percent on the day.
Davis said government would do all it could to make sure business gets the maximum access to the European Union's single market while minimising disruption to business in its talks with the bloc. He also did not rule out the possibility of a "transitional arrangement" to help businesses avoid a cliff edge after two years of talks.
"It's quite surprising not to see sterling lower after that labour market data, especially as it was what we’ve been waiting for – the first real signs of a slowdown in the UK real economy," said ING currency strategist Viraj Patel.
"There seems to be a sense of optimism in sterling markets right now... and the reason is that there have recently been steps towards a softer Brexit. Davis's comments reaffirm that - there was nothing new and there were a lot of ifs and buts ... but markets see less probability of a hard Brexit and that's keeping sterling supported."
The numbers from the Office for National Statistics suggested a six-year expansion in the labour market may be ending, though wage growth accelerated modestly and a measure that excludes bonuses rose at its fastest since August 2015.
"I take (today's data) as another reason to think that the UK economy is going to run out of steam over the course of 2017, so my bias is to go short cable (sterling/dollar)," said Societe Generale macro strategist Kit Juckes. "I'm not going to get super-excited about data showing ex-bonus wage growth."
The Fed is seen as all but certain to raise its main rate by a quarter point to 0.50-0.75 percent, in an announcement due at 1900 GMT.
Editing by Larry King