LONDON (Reuters) - Sterling hit its highest in almost eight months on Wednesday, briefly threatening to pass $1.30 as doubts about U.S. President Donald Trump's political future weighed on the dollar.
The pound rose back to the top of the past month's range versus the dollar, bouncing to as high as $1.2991 as risk aversion intensified in the London afternoon.
It spent most of the day hovering near $1.2950 after an initial dip following UK wage and jobs numbers before retreating to $1.2942 by 1600 GMT, still up 0.2 percent on the day.
Against the euro the pound was flat, recovering from its weakest levels in five weeks, trading at 85.79 pence per euro.
The dollar has weakened on reports that Donald Trump disclosed classified information to Russia's foreign minister and asked then-FBI Director James Comey to end his agency's investigation of former National Security Advisor Michael Flynn.
Both cast doubt on how effective his administration could be now and spurred investors to rein in the expectations for higher inflation and a stronger dollar with which they greeted the new administration last year.
"This does not yet spell the end of Trump, but what it does mean is twofold: the market’s pricing of Trump’s being able to get anything through Congress is diminished further and ... impeachment now creeps ever so slightly into the markets," Nomura strategist Jordan Rochester said.
Some analysts pointed to higher-than-expected growth in employment and a dip in the jobless rate for the first quarter as a positive signal for sterling as it struggles to break through $1.30.
But while wage growth - long a missing ingredient in Britain's economic recovery - came to 2.1 percent, that was still slower than inflation and only around half the pace of the years before the 2008 financial crash.
"The wage numbers are the big story and they confirm the fact that we are in obviously a squeeze for consumers," said Christopher Beauchamp, market analyst at IG Markets.
"Of course you're not seeing completely much of a negative reaction in the pound because I think a lot of this is dollar weakness now. You've seen an unravelling of that side of the equation."
He and others in the market have pointed to the willingness of companies to hedge at current rates, locking in gains made since the announcement last month of a June 8 parliamentary election.
That points to concerns that the pound will struggle to get any higher during 18 months of talks on the terms of Britain's departure from the European Union.
Bullish investors, however, point to robust British consumer spending and growth over the past year and to the upward pressure that higher inflation may put on interest rates and the idea that Brexit risk is now largely priced in.
"Stability is the word for sterling at the moment," said ING currency strategist Viraj Patel.
"We have some short-term bullish momentum but until you take away that longer term uncertainty, we are not going to get much higher."
Editing by Larry King