Sterling steadied against the dollar and euro on Thursday after a deep slump a day earlier as Britain's softer-than-feared inflation eased tightening pressures from the Bank of England (BoE).
The pound was about flat against the euro at 88.80 pence, after recording its biggest daily drop against the single currency in two months on Wednesday when data showed UK consumer price inflation (CPI) cooled to 10.1 per cent last month, the lowest reading since September.
Against the dollar, sterling edged up 0.13 per cent to $1.2054, after falling more than 1 per cent versus the greenback on Wednesday.
Francesco Pesole, FX strategist at ING, said that despite better-than-expected recent data, he still sees a recession in the first and second quarter in the UK.
"Even if the dollar comes under some pressure, we still don’t think pound will be the preferred currency," he said.
Earlier this week, data showed basic pay in Britain growing more quickly again in the last three months of 2022, though Britain's unemployment rate stayed close to five-decade lows while employment grew.
Media reports on post-Brexit negotiations between Britain and the European Union, the unexpected news that Scotland's First Minister Nicola Sturgeon plans to resign and the implications for the political movement aimed at Scottish independence seems to have had little impact on the pound.
"A potential Scottish referendum might have been a discussion when the next election approaches but it’s too early for that," said ING's Pesole, adding that "domestic factors" have not been affecting sterling as much as monetary policy and global risk sentiment.
