Sterling hovered around its one-month high against the dollar on Wednesday as investors braced for a raft of British and U.S. economic data later this week.
The pound was roughly unchanged at $1.3510 , after hitting $1.3530 on Monday, its highest level since July 16.
Analysts said Britain's economy had not weakened enough to put the debate over further Bank of England rate hikes to rest, while gilt yields remained close to their highest levels in nearly two decades as fiscal uncertainty kept term premiums elevated.
The term premium is the additional yield investors demand for holding long-term government debt, and it tends to rise when inflation, fiscal or policy risks increase.
“Higher for longer oil prices may force the BoE to increase its tough talk against inflation, but so too would other central banks, suggesting that the forex reaction may still not favour the pound on all fronts,” said Jane Foley, senior strategist at Rabobank.
“Uncertainty about the budget could keep the UK market nervous into the autumn and we would look to buy the euro/sterling on dips back to 0.85, with the 50-day simple moving average currently providing resistance around the 0.8578 area,” she added.
The date for this year's UK Budget has been set for Wednesday, October 28.
Deutsche Bank said euro/sterling three-month implied volatility was at 3.6%, a level it described as lower than at the same stage before any major British budget or fiscal announcement over the past two decades.
The euro was 0.05% lower at 85.41 pence, after reaching 85.37 pence on Monday, its lowest level in almost three weeks.
