The pound rose to its highest in almost three months against the US dollar today ahead of the UK government's budget this week, largely as the greenback came under fire.

As investors assessed the likely outlook for US interest rates, sterling rose by as much as 1% against the dollar to its highest since late August.

Meanwhile, the greenback fell against a raft of other currencies, including the euro and Australian and New Zealand dollars.

A cooler read of US inflation last week has prompted investors to factor in the possibility of US interest rates rising more slowly, which in turn, reduces the dollar's appeal to yield-hungry overseas buyers.

Newly appointed UK finance minister Jeremy Hunt will deliver his autumn budget on Thursday.

This is expected to contain a raft of measures, including tax rises and spending cuts, aimed at closing a £50 billion gap in Britain's finances.

Hunt, together with Prime Minister Rishi Sunak, has been keen to persuade markets of the government's fiscal prudence and will be keen to avoid the torrent of volatility that his predecessor, Liz Truss, unleashed with her own fiscal plan in late September.

The pound was last up 1% against the dollar at $1.18785, while against the euro it was up 0.1% at 87.74 pence.

Sterling, which has lost over 12% in value against the dollar this year, has risen 3% so far in November, on course for its largest monthly gain since July 2020, when the economy began to reopen after a first round of pandemic lockdowns.

Futures markets show investors are attaching a 60% chance of the Bank of England, headed by Governor Andrew Bailey, raising interest rates by 50 basis points in December, and a near-40% chance of a 75-bp increase.

Data today showed Britain's unemployment rate rose to 3.6% in the three months to September and vacancies fell for a fifth time in a row as employers worried about the outlook for the economy, the Office for National Statistics said today.

Economists polled by Reuters had expected the jobless rate to remain at 3.5%.

Meanwhile, average weekly earnings excluding bonuses rose by 5.7% in the three months to September, above expectations for an increase of 5.5% and their fastest pace since the three months to August 2021.

However, with data tomorrow expected to show consumer prices rose by 10.7% in October, wages are a long way off keeping pace with inflation - another factor dragging on UK economic growth.

"Hunt's statement is likely to be overshadowed by the CPI data, and should any change in sterling be witnessed, it will likely be a decline, as the Chancellor forces the hesitant Bailey into a lower rate hike in December as the budget piles downward pressure on growth," CaxtonFX strategist Michael Bro