LONDON (Reuters) - The pound edged higher against the dollar on Wednesday as traders awaited Britain's latest fiscal plans, possibly the last budget before a likely election later in the year.
Sterling was last up about 0.1% at $1.2724, just shy of a one-month top of $1.2735 reached on Tuesday, although within its narrow $1.2501-$1.2825 range since mid-November.
Against the euro, the pound was little changed at 85.48 pence.
Markets will be closely watching Finance Minister Jeremy Hunt's spring budget for probable tax cuts before a likely election in 2024, but with the gilt turmoil of 2022 still fresh in the memory, the leeway for sweeping fiscal easing is limited.
Media reports have suggested Hunt will cut the rate of social security contributions by 2 percentage points but the tight fiscal headroom gives little room for manoeuvre.
"Chancellor Hunt was brought in as a safe pair of hands to the UK Treasury and is only too aware of how much fiscal largesse he can deliver without upsetting the bond market," said Chris Turner, global head of markets at ING.
Back in 2022, former Prime Minister Liz Truss's finance minister Kwasi Kwarteng announced sweeping, unfunded tax cuts and large government spending plans, sending bond markets into a tailspin and pushing the pound to a record low against the dollar.
The pound has recovered since and is one of the only major currencies that has managed to keep pace with the stronger dollar this year, amid a more robust UK growth outlook and stickier inflation.
That has kept the Bank of England as one of the more hawkish central banks, with markets pricing in just over 50 basis points of easing this year, the equivalent of two quarter-point cuts.
In contrast, markets are pricing in 90 bps of easing from both the Federal Reserve and European Central Bank in 2024.
"Some decent fiscal stimulus should only delay the Bank of England easing cycle ... and support sterling," ING's Turner said, with the bank currently pencilling in the August meeting as the likely start date for rate cuts.