The pound eased against the dollar on Thursday but was still headed for its biggest monthly gain in a year, given pressure on the U.S. currency from growing expectations for the Federal Reserve to cut rates earlier than many other central banks.

Sterling has made more modest inroads against the euro . The common currency lost 0.8% against the pound in November.

The pound was last down 0.4% at $1.26457, but set for a rise of 4.1% in November, its largest one-month gain against the U.S. currency since last November. The euro was last down 0.1% against the pound at 86.32 pence.

"As investors expect the next Fed move to be a cut, it’s plain to see why the dollar is under pressure while sterling is making gains," Trade Nation senior market analyst David Morrison said.

Traders believe the Bank of England will have to keep rates higher for longer than most other major central banks next year, given UK inflation is still way above target, though cooling.

Money markets show traders estimate the BoE will deliver its first rate cut by June, compared with April for the European Central Bank and May for the Federal Reserve.

BoE Governor Andrew Bailey said on Wednesday the central bank would do "what it takes" to get inflation down to its 2% target, but he had not seen enough progress yet towards that goal to be confident.

"We are not in a place now where we can discuss cutting interest rates – that is not happening," Bailey said in an interview with Daily Focus, a news service in central England.

 

INFLATION SLOWING

British consumer price inflation stood at a two-year low of 4.6% in October, down from last October's 11.1% peak.

"Sterling is stuck around $1.27 as Bailey said it is too early to talk about rate cuts," Saxo Bank's strategy team said in a note.

The anticipated scope of UK rate cuts is also likely to be more modest, based on market expectations right now. Traders see around 75 basis points in cuts from the BoE, compared with 100 bps from the Fed and the ECB.

On Tuesday, Monetary Policy Committee member Jonathan Haskel said Britain's labour market was still too strong to consider rate cuts right now.

"Rates will have to be held higher and longer than many seem to be expecting," he said.

(Reporting by Amanda Cooper; Editing by Gareth Jones)