Sterling edged up from one-month lows against the euro on Wednesday after a gloomy UK budget statement which traders said was in line with expectations. But forecasts from finance minister George Osborne that Britain would miss its debt-reduction and growth targets left the currency looking vulnerable.
Analysts said the poor UK economic outlook might revive prospects of more monetary easing by the Bank of England and increase the risk of a credit agency cutting the UK's top-notch rating, both of which would be negative for sterling. The euro was down 0.2 percent against the pound at 81.18 pence, easing back following Osborne's autumn budget statement having earlier hit a one-month high of 81.45 pence.
Some analysts said the euro could soon test its late October peak of 81.65 pence. "Sterling has not reacted much after the statement - it has been caught up in the crossfire in other currency pairs," said Adam Cole, global head of FX strategy at RBC Capital Markets.
The pound was steady against the dollar at $1.6094, though traders said reported offers ahead of $1.61 may stem its rise. It remained relatively close to a one-month peak of $1.6131 hit on Tuesday, with traders reporting buying of the pound from a supranational.
Earlier in the session, the pound barely reacted to a survey showing Britain's service sector grew at its slowest pace in nearly two years in November. The purchasing managers' index was below forecasts but still just above the 50 level, signalling growth. The lower growth forecasts could open the way to more bond purchases by the Bank of England, which meets on Thursday, said Audrey Childe-Freeman, head of foreign exchange strategy at BMO Markets in London.