LONDON, Dec 3 (Reuters) - Sterling gained against the dollar on Tuesday after dovish comments from Federal Reserve Governor Christopher Waller and was steady against the euro as political turmoil in France kept investors on edge.
The pound was last up 0.16% at $1.2678, recovering some of Monday's 0.7% loss. In the last three months, the pound has fallen 3.33% against the dollar.
Waller, a U.S. rate-setter, said on Monday that with inflation still forecast to fall to 2%, he is inclined "at present" to support another interest rate cut later this month.
Markets are now pricing in a 70% likelihood of a 25 basis point rate cut at the Fed's next meeting on Dec. 18, compared to about 50% just over a week ago.
In Europe, investors remained cautious after French opposition parties from both the far-right and the left-wing submitted no-confidence motions against Prime Minister Michel Barnier on Monday.
Barnier will likely face the vote on Wednesday after fierce opposition from across the political spectrum to his budget, which contains painful tax rises and spending cuts aimed at repairing the country's precarious finances.
The pound traded flat against the euro at 83 pence after gaining 0.12% on Monday.
Investors are largely expecting the Fed and the European Central Bank (ECB) to cut interest rates this month but anticipate that the Bank of England (BoE) will leave UK rates unchanged on Dec. 19.
Fiona Cincotta, senior market analyst at City Index, said the BoE is not showing signs of moving quickly on rate cuts, benefiting the pound, while the ECB might have to cut rates more rapidly.
"There's political stability (in the United Kingdom) that is just not present in major economies in the euro zone," Cincotta added.
Earlier on Tuesday, the British Retail Consortium said UK retailers reported lacklustre sales in November, based on industry data.
The timing of the Black Friday shopping event this year meant it fell beyond the scope of the November data and will show up instead in the December numbers, which partly accounted for the weakness in consumer spending, according to the BRC.
Reporting by Greta Rosen Fondahn; Editing by Amanda Cooper and Kirsten Donovan
Source: Reuters