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Sterling steady at highest in almost three months

By Samuel Indyk

LONDON, Nov 28 (Reuters) - Britain's pound was holding near its highest level in almost three months on Tuesday and remains on track for its biggest monthly rise in a year against the dollar as resilient data and a higher-for-longer rates message support the currency.

Bank of England Deputy Governor Dave Ramsden on Tuesday told a conference in Hong Kong that monetary policy would need to remain restrictive for some time to defeat inflation, pouring cold water on the idea that interest rate cuts are imminent.

BoE governor Andrew Bailey shares that view, repeating on Monday that it was too soon to have a discussion about loosening policy.

Money markets are still pricing around 63 basis points of policy easing from the BoE by the end of next year, although that is less than markets price for both the Federal Reserve and the European Central Bank, where around 90 basis points of cuts are priced in.

"The Bank of England has been at pains to stress to markets that UK rate pricing for cuts in 2024 is misplaced," said Kamal Sharma, G10 FX strategist at Bank of America.

"The message finally appears to be resonating."

By 1147 GMT, the pound was little changed against the dollar at $1.2627, just below the near three-month high of $1.2644 reached on Monday.

The currency has risen almost 4% in November, its biggest monthly rise since a more than 5% gain in November last year.

The pound was also trading flat at 86.76 pence per euro.

Analysts said last week's changes to fiscal policy, which included tax cuts for workers, were also helping the pound.

"The Autumn Statement had some inflationary measures," said Danske Bank analyst Kirstine Kundby-Nielsen.

"Some of the more hawkish commentary from the Bank of England has definitely added to the narrative that inflation will be more sticky," Kundby-Nielsen added.

Data has been robust, with business activity unexpectedly returning to marginal growth in November after three months of contraction, according to the S&P Global/CIPS Purchasing Managers' Index.

"Whilst encouraging, we note that expectations around UK data have been weak, and whilst the recent flow has been encouraging, the macro outlook will likely remain poor in 2024," BofA's Sharma said.

"High inflation and anaemic growth do not provide the basis for a strong currency, but for now, the rebound in data surprises has provided the catalyst for the back-up in UK yields."

(Reporting by Samuel Indyk, editing by Ed Osmond)

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