(Updates after UK budget statement, fresh details)
By Anirban Nag
LONDON Dec 3 Sterling hit a three-week high
against the euro on Wednesday, after a survey showed Britain's
dominant services sector grew much faster than expected in
November and finance minister George Osborne gave an upbeat
In his Autumn Statement, Osborne raised near-term growth
forecasts and while the government will miss deficit-reduction
targets, Britain will sell fewer bonds in 2014/15 than
previously forecast, sending gilt futures and the pound
Sterling was up 0.25 percent at $1.5680, pulling
away from Monday's low of $1.5585 -- the pound's weakest since
early September 2013. It was also helped by a drop in the dollar
after the U.S. ADP jobs report missed forecasts.
"First impressions suggest the Autumn Statement should be
positive for domestic consumption with income taxes, stamp duty,
inheritance and air duty cuts," said Josh O'Byrne, currency
strategist at Citi.
"Taken together with the quite impressive services PMI
figure this morning, we've seen a cautious rebound in the pound
with BoE (rate) hike expectations edging slightly forward to
The pound rose 0.8 percent against the euro, with the single
currency down at 78.565 pence -- its lowest since
Nov. 12. The euro was under pressure ahead of a European Central
Bank meeting on Thursday.
Policymakers in the euro zone are grappling with declining
inflation expectations, which are likely to prompt them to ease
policy sooner rather than later.
Back in Britain, investors drew comfort from the services
sector purchasing managers' index (PMI), which highlighted the
contrasting prospects for Britain and the euro zone economies.
The closely watched Markit/CIPS services PMI rose to 58.6 in
November, beating forecasts in a Reuters poll, after falling
sharply to 56.2 in October.
UK rate forecasts have been pushed back dramatically over
the past few months, with some now not expecting a hike until
early 2016. That pushback of expectations has weighed on the
pound, sending it down almost 9 percent since it hit a six-year
high near $1.72 in July when many had expected a hike this year.
Sterling has also been hurt by growing political uncertainty
ahead of next year's general election.
"The far more important question facing the UK is whether
there will be an effective government of any colour after May
2015," said Christopher Mahon, investment manager at Barings
"How markets react to the prospect of a far less stable UK
government may end up as one of the defining stories of 2015."
(Editing by Louise Ireland and Susan Fenton)