LONDON (Reuters) - Sterling languished at a ten-week low on Tuesday as concern about Britain's departure from the EU led investors to largely ignore hopes of an end to austerity raised by Britain's finance minister Philip Hammond.
The pound has weakened 4 percent since September as traders fret over lack of progress in divorce talks over issues including the Irish border five months before Britain exits the European Union.
After a decade of cuts to public services, Hammond's budget on Monday offered a glimpse of higher spending. But he made clear that will hinge on London getting a trade agreement with Brussels.
"The market is entirely certain that the British economy will only be able to benefit from the attested end of austerity announced yesterday if an orderly Brexit is achieved," said Esther Maria Reichelt, an FX strategist at Commerzbank (DE:CBKG) in Frankfurt.
"An agreement does not seem to be any closer so there is still the threat of a no-deal Brexit ...And that is all that matters for sterling at the moment."
On Wednesday the pound fell 0.2 percent <gbp=d3>versus a broadly stronger dollar to $1.2756, its lowest since 20 August. It also lost ground against an otherwise under-pressure euro, falling to a one-month low of 89 pence. (EURGBP=D3)</gbp=d3>
Sterling traders are turning their attention to the Bank of England's monetary policy meeting on Thursday, where it is expected to keep interest rates on hold and detail conditions necessary for policy tightening.
"Were it not for Brexit, the BoE on Thursday would probably be providing guidance on a rate hike, possibly in February given the compelling evidence of rising wage growth," MUFG analysts said in a note.