Sterling recovered some of its losses against the US dollar in afternoon trading after chancellor Philip Hammond first Budget gave a relatively upbeat outlook of the UK economy.
While borrowing this year is now forecast by the Office for Budget Responsibility (OBR) to be lower, Hammond revealed little in the way of big fiscal spending. Downing Street earlier briefed the chancellor will hold back any spending increase in case of turbulence during the process of leaving the EU.
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The pound rose against the dollar after the speech, recovering from lows of $1.2139 to reach $1.2172 at the time of publication. Against the euro the pound was firmer, recovering from fresh seven-week lows of €1.1501 to make back most of the day's losses.
Sterling remains at levels not seen since before Prime Minister Theresa May’s seminal speech of 17 January, in which she confirmed the UK would not remain in the Single Market.
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Trading in the UK government bond market was relatively calm, although the spread between UK 10-year gilts and global benchmark US 10-year Treasuries remains at elevated levels. The yield on the UK 10-year rose after the speech to 1.235 per cent at the time of publication, according to Tradeweb.
A more upbeat fiscal outlook – after the UK received another GDP growth upgrade from the Organisation for Economic Co-operation and Development (OECD) – is expected to see a move back into sterling and a rise in bond yields, which move inversely to prices.