Sterling steadied against the dollar and euro today after a deep slump a day earlier as Britain's softer-than-feared inflation eased tightening pressures from the Bank of England.
The pound was also about flat against the euro at 88.80 pence.
It recorded its biggest daily drop against the single currency in two months yesterday when data showed UK consumer price inflation cooled to 10.1% last month, the lowest reading since September.
Against the dollar, sterling edged up 0.13% to $1.2054, after falling more than 1% versus the greenback yesterday.
The better-than expected inflation figures weakened the pound amid boosted expectations that the Bank of England may be set to end its interest rate hiking cycle.
Money market is pricing in a 65% chance of a 25 basis points increase to the Bank of England bank rate in March, after which the central bank is expected to stop hiking rates.
Jane Foley, head of FX strategy at Rabobank, said the euro was holding onto the gains made against the pound on the back of the inflation report but much of the optimism for the slowing down in the inflation had been previously flagged by the Bank of England limiting the pound slump.
"UK inflation data speaks to the cautious optimism noted in the remarks from BoE Governor Bailey earlier this month when he noted that price pressure may have turned a corner. Consequently, the market has priced out some of the previously projected policy tightening from the BoE which has undermine the pound," she said.
Francesco Pesole, FX strategist at ING, said that despite better-than-expected recent data, he still sees a recession in the first and second quarter in the UK.
"In this sense ING still think the appetite to go long sterling will be somewhat limited. Even if the dollar comes under some pressure, we still don't think pound will be the preferred currency," he said.
Earlier this week, data showed basic pay in Britain growing more quickly again in the last three months of 2022, though Britain's unemployment rate stayed close to five-decade lows while employment grew.
