Sterling stayed near the previous session's two-month high against the euro on Wednesday but drifted down versus the dollar, with the market settling into wait-and-see mode ahead of Thursday's UK interest rate decision.
The market had an early boost from Halifax house price data showing British house prices rose by 1.6 percent in August, giving a three-month annual rate of increase of 2.5 percent. The monthly gain was its biggest in almost a year.
The house price data comes as the Bank of England kicked off its monetary policy meeting on Wednesday, with analysts expecting the bank to keep interest rates unchanged at 4.5 percent after last month's easing.
"Looking ahead we have to get tomorrow's interest rate decision out of the way so there is an element of 'wait-and-see' going on - we also have trade figures coming up on Friday," GNI currency strategist Mark Henry said.
By 1350 GMT, sterling was steady on the day versus the euro at 67.60 pence per euro, still near a two-month high hit on Tuesday at 67.58.
Sterling was slightly lower against the dollar at $1.8393.
The pound has been boosted this week by anticipation of a large inflow of pounds on news that E.ON, Europe's biggest utility by market value, said it was considering a cash offer for Britain's Scottish Power.
E.ON said on Monday it may bid for Scottish Power but it has made no approach to the firm's board and there can be no assurance that a transaction will be forthcoming. Scottish Power is valued at around $19 billion.
Some analysts said that while they don't see the Bank of England cutting rates this month, there could well be another easing on the cards either later this year or early 2006.
"We don't expect another rate cut ..., but there is still the risk that rates might be cut again at some point if the economy should slow further," said Commerzbank currency strategist Carsten Fritsch in Frankfurt.