LONDON (Reuters) - The pound inched down to just above two-month lows on Monday as traders prepared for the British finance minister's annual budget speech later in the day.
Philip Hammond will use his speech to urge his divided Conservative Party to back the government's plan for a Brexit deal, or put at risk a long-awaited easing of austerity.
After a decade of cuts to public services, Hammond is expected to offer a glimpse of higher spending. But he will also make clear that more spending will hinge on London agreeing with Brussels on the terms of its exit from the European Union in March.
The currency fell 0.1 percent to $1.2817
Against the euro, the pound traded flat at 88.880 pence per euro
Sterling traders will also be focussed on the Bank of England monetary policy meeting on Thursday.
"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.
Simon Derrick, chief currency strategist at BNY Mellon, said that pricing in sterling options markets signalled increasing concern about the outlook for the currency heading into 2019 and ahead of the Brexit departure date in March.
"Since the October 17 EU summit, however, renewed outflows have begun to emerge as investors have become steadily more concerned about the lack of agreement between the EU and UK on the divorce deal," he said.
(Reporting by Tommy Wilkes, editing by Larry King)