Sterling held steady against the dollar and hovered near recent 10-month lows against the euro on Tuesday as the market awaited hints on interest rate policy from the Bank of England's quarterly inflation report. The pound rose against the dollar and the euro early in the day after data showed that Britain's trade deficit narrowed in September as exports shot up to their highest level in more than two years, but it later eased back.
The goods deficit shrank to 4.55 billion pounds against 5.16 billion in August and market expectations of 5.1 billion.
By 1512 GMT, sterling stood at 69.62 pence against the euro, virtually unchanged on the day and hovering near last week's 10-month low against the euro of 69.99 pence.
Against the dollar, sterling was steady at $1.8547, having hit a 3-1/2 month high of $1.8617 on Monday.
The dollar has been under broad pressure in recent sessions due to concerns about the US economy and the growing US trade gap.
The market is focused on the Bank of England's quarterly inflation report due out at 1030 GMT on Wednesday for hints on future interest rate policy, after five interest rate rises between November and August to the current 4.75 percent.
Some analysts suspect that the central bank's tone could be more hawkish than many people have prepared for and therefore may challenge a view that it might be done with raising the cost of borrowing.
"The market has been speculating that the UK has reached a peak with rates but I believe the Bank of England will put forward a more balanced view to stop the market getting too far ahead of itself," said Ian Stannard, foreign exchange strategist at BNP Paribas.
"The pound could be sensitive to any suggestions that rates haven't peaked and could pick up support from that. We couldn't rule out short-term dips in euro/sterling but the bigger picture is that euro/sterling will continue to push higher," he added.