The sharp drop in the UK unemployment rate and mounting expectations of a 2014 rate hike pushed sterling to a two-year high versus the US dollar in morning trading. Yesterday's drop in the official unemployment rate to 7.1% sparked renewed forecasts of an interest rate rise after it moved within a whisker of new Bank of England Governor Mark Carney's 7% threshold. Carney said last August the Bank would not even consider raising interest rates unless unemployment fell below 7% and, although it remains only a single factor in the decision, the fall in the jobless figure has prompted speculation there could be a move sooner than expected. Some commentators now forecast a rate increase at the tail end of this year, although most are predicting a rise in 2015. The pound rose to $1.6616 in reaction this morning, having triggered stop-loss orders above $1.6605 - the peak it hit in early January this year. The move left it at its highest level since mid-August 2011. It also marked the fifth straight day of gains for the pound against the dollar. UK money markets are also pricing in an increasing probability of a rate hike, according to Reuters. The sterling overnight interbank average is near to pricing in the chance of an interest rate rise in 11 months' time, while markets see a 60% chance of a rate hike within 18 months.

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