PHOTO
The pound was little changed against the dollar after five straight daily gains, but volatility was low as markets awaited U.S. economic data later in the session, which could affect expectations for the Federal Reserve policy path.
Investors were still focused on market pricing for future rate cuts after the pound recorded its biggest one-week gain in 2024 versus the greenback last week.
Increasing risk appetite after results from chipmaker Nvidia and upbeat business activity surveys, which fuelled expectations that the British economy will emerge from its shallow recession in early 2024, boosted the British currency.
Sterling edged up 0.05% to $1.2690. Against the euro it was flat at 85.55.
The pound continues to benefit from high short-term rates, "as well as the modestly better economic data that we are seeing recently, at least compared to other European countries," said Roman Ziruk, senior market analyst at Ebury.
"The consensus position at the Monetary Policy Committee (MPC) is that while rates have reached their cycle high, there is little appetite for immediate cuts, and the first cut will not come before the summer at the earliest," he added.
Money markets fully price in a first BoE rate cut in August while discounting the same move by the European Central Bank and the Federal Reserve in June -- according to CME Group's FedWatch Tool.
Chancellor Jeremy Hunt will deliver his budget next week.
"The political pressure on him to deliver tax cuts is huge, even though the government's fiscal room is likely to be more limited than expected in January," said Mujtaba Rahman, managing director Europe at Eurasia Group.
"To finance the tax cuts, officials are considering a further squeeze on public spending; this would further compound the medium-term challenges for an incoming Labour Party-led government, which would be forced to either raise taxes or deliver on the Tories' spending cuts," he added.
Britain's opposition Labour Party is way ahead in the polls before a national vote expected this year and recently won a contest for a new lawmaker in the southwestern English town of Kingswood, dealing a blow to the governing Conservatives.
(Reporting by Stefano Rebaudo; Editing by Bernadette Baum)