Sterling rose in European trade on Tuesday against a basket of major rivals, resuming gains against the dollar and hitting two-week highs after strong UK labor data.

Such data hurt the odds of early Bank of England interest rate cuts this year and reduced concerns about a widening rate gap between the US and Britain.

GBP/USD

GBP/USD rose 0.2% to 1.2656, the highest since February 2, with a session-low at 1.2609, after losing 0.1% on Monday on profit-taking off two-week highs.

UK Labor Market

Earlier UK data showed unemployment fell to 3.8% in December, below estimates of 4.0%.

UK average wages rose 5.8% in December, above estimates of 5.6%, but down from 6.7% in November.

UK jobless claims rose 14.1 thousand in January, below estimates of 15.2 thousand.

Such data showcases the tight conditions in the UK labor sector, in turn heaping pressure on BOE policymakers and paving the way for extended tight monetary conditions this year.

UK Rates

Such data hurt the odds of a UK interest rate cut in the first half of the year and delayed such prospects to August.

Markets now expect a total of 69 basis points of UK interest rate cuts this year, down from 78 basis points before the labor data.