The pound on Monday gave back some of the gains made last week on the back of investors pricing in looser financial conditions under Britain's new finance minister, but remained above $1.30 with speculators maintaining long positions on the currency.
Last week, sterling enjoyed its best week in two months after Rishi Sunak was appointed as finance minister on Thursday when incumbent Sajid Javid unexpectedly quit while Prime Minister Boris Johnson was reshuffling his cabinet.
But on Monday, the pound shed some of that strength, to trade down 0.3% at $1.3010, though still quite far from the recent low of $1.2873. It also fell 0.3% against the euro at 83.28 pence.
Johnson wants to increase spending on everything from infrastructure and police to health and education. Sunak has backed higher public spending, most recently speaking in support of multi-billion pound transport projects.
Sunak is preparing to ease Britain's fiscal rules in his first budget, as he comes under pressure from Downing Street to open the spending taps, the Financial Times reported on Friday.
"Building expectations for looser fiscal policy are helping to boost optimism that the UK economy could outperform this year at least relative to downbeat expectations and other major economies," Lee Hardman, currency analyst at MUFG, said.
"The positive impact on the pound from the improving outlook for the UK's economy is outweighing the negative weight provided by continued concerns over the UK's future trading relationships in the near-term," Hardman said.
A human resources group said jobs in Britain's public sector look set to rise at the same pace as private sector jobs for the first time since 2008, reflecting an easing of government cuts in many departments.
Leveraged funds were slightly more positive about the British currency as they added a small amount of long positions on the pound in the week to Feb. 11, taking the total amount of longs at $1.71 billion.
Investors will be looking out for David Frost's speech later on Monday when Johnson's EU adviser sets out what Britain wants from its future relationship with the European Union.
British consumers face higher prices and reduced availability of goods if the government fails to agree pragmatic solutions with the bloc on regulatory checks at ports in any post-Brexit deal, the retail industry's lobby group warned on Monday.
Traders will be watching the February flash composite purchasing managers' index data due on Friday, which could serve as a guideline to the Bank of England's future monetary policy.
The BoE left interest rates unchanged at 0.75% last month. Some market participants had expected the central bank to cut interest rates and loosen monetary policy.
"After the strong bounces in the January PMI data, the extent to which this is sustained in February will be key for UK rate sentiment," said Adam Cole, currency strategist at RBC Capital Markets.