Sterling steadies at multi-month lows after two days of falls

LONDON (Reuters) -Sterling steadied on Thursday against both the dollar and euro after two days of sharp depreciation, but looks set for further choppiness ahead of next week's Bank of England meeting.

The pound was last at $1.3182, a touch above Wednesday's intraday over-five-month low of $1.3142.

It was at 88.1 pence per euro, again just shy of Wednesday's 88.16 pence per euro, its softest since May 2023.

The British currency this week has been shaped by traders and analysts' efforts to digest last week's raft of economic data - most notably softer than expected inflation figures - ahead of next week's BoE session.

Goldman Sachs, for example, on Wednesday changed its BoE call and now expects a rate cut.

Markets currently see around a one in three chance of a 25 basis point BoE rate cut next week, leaving the pound vulnerable to moves in either direction on the BoE's decision or as pricing shifts more firmly in favour of, or against, a cut.

Also in the mix are rumours and speculation about the scale of tax rises and spending cuts British chancellor Rachel Reeves will have to pursue in her late November budget - greater fiscal tightening could lead to the BoE lowering rates more quickly.

BofA analysts expect the BoE to keep rates on hold next month, which should buoy sterling. "However, with budget news-flow intensifying and (sterling) risk premium rising, we think this will be headwind to a (sterling) recovery," they wrote in a Thursday note.

Further complicating the picture, they added, are month-end flows as asset managers rebalance their portfolios after this month's market moves and the "breach of key technical support levels in sterling crosses".

As well as falling to a more than two-year low on the euro on Wednesday, the pound also hit multi-year lows on the Swiss franc as well as the Swedish and Norwegian crowns.

(Editing by Mark Heinrich)