Sterling gained ground against the dollar on Tuesday after downbeat comments from Federal Reserve Governor Christopher Waller and remained stable against the euro as political unrest in France kept investors on edge.
The pound was up 0.16% at $1.2678, recouping some of the 0.7% loss suffered on Monday. Over the past three months, the pound has lost 3.33% against the dollar.
Mr. Waller, one of those responsible for setting interest rates in the United States, said on Monday that because of expectations that inflation would fall to 2%, he was inclined “for now” to support a further cut in interest rates later this month.
Markets are now pricing in a 70% chance of a 25 basis point rate cut at the Fed's next meeting on December 18, up from around 50% just over a week ago.
In Europe, investors remained cautious after France's far-right and left opposition parties filed motions of no confidence against Prime Minister Michel Barnier on Monday.
Mr Barnier will likely face the vote on Wednesday, after fierce opposition from across the political spectrum to his budget, which contains painful tax increases and spending cuts aimed at repairing the country's precarious finances.
The pound sterling remained stable against the euro, at 83 pence, after gaining 0.12% on Monday.
Investors widely expect the Fed and European Central Bank (ECB) to cut interest rates this month, but expect the Bank of England (BoE) to leave UK rates unchanged on December 19.
Fiona Cincotta, senior market analyst at City Index, said the BoE was not showing signs of wanting to cut rates quickly, which benefited the pound, while the ECB may have to cut rates more quickly.
“Political stability (in the United Kingdom) does not exist in the main economies of the euro zone,” added Ms. Cincotta.
Earlier on Tuesday, the British Retail Consortium said UK retailers reported mixed sales in November, according to industry data.
This year, the Black Friday shopping event was not taken into account in the November data and will instead appear in the December figures, which partly explains the weakness in consumer spending, according to the BRC.
