LONDON (Reuters) -The pound held steady on Wednesday, hemmed in by a firm dollar ahead of key U.S. inflation data this week, and by a degree of stasis ahead of rate meetings at both the Federal Reserve and the Bank of England next week.
Sterling was up 0.1% at $1.3539 around midday in London.
The pound was also set for a 0.4% gain over the last two trading days against the euro, after the French government collapsed on Monday, after a confidence vote in parliament ousted the prime minister.
The pound has recovered from the rout in early September that sent it down to one-month lows, when investors were alarmed enough by the outlook for Britain’s finances that they sold long-dated government bonds, pushing yields to their highest since the late 1990s.
Several driving forces are behind that rally. Investors think the BoE is unlikely to cut interest rates much more for the time being, while central banks elsewhere, such as the Federal Reserve, lower borrowing costs.
Britain has the highest rate of inflation among the Group of Seven richest nations, with price pressures in harder-to-target areas of the economy such as wages and the services sector proving particularly resilient.
Recent data show the economy is holding up, despite stubborn inflation and a weakening labour market.
Finance minister Rachel Reeves has been under pressure to keep Britain’s finances on track, without breaking her own borrowing rules. Her next budget announcement is due in November.
“… it is difficult to figure out exactly how she will balance the books in the autumn budget given that Labour MPs have baulked at cutting welfare spending and in view of her own set of strict fiscal rules. The market is therefore likely to remain sensitive to fiscal matters in the UK,” Rabobank strategists said in a note on Tuesday.
(Reporting by Amanda Cooper; Editing by Alex Richardson)
