By Alun John
LONDON (Reuters) - Sterling steadied against the dollar on Thursday, after two volatile days largely cancelled each other out, leaving the British currency not far off a 10-month peak.
The pound was flat at $1.2471, having risen 0.48% on Wednesday and fallen 0.58% on Tuesday as markets vacillated over whether U.S. banking jitters and a standoff over the debt ceiling was good or bad news for the dollar.
"Risk aversion is positive for the dollar, but it looks like the problems are concentrating in the U.S. so that means if there is a response from central banks its going to be larger in the U.S.," said Jan von Gerich, chief analyst at Nordea.
A conveyor belt of interest rate hikes in Europe just as U.S. rates near a peak have been supporting the pound and euro. Sterling hit a 10-month high of $1.2545 on 14 April.
Von Gerich said as for the pound/dollar pair specifically "in the short term it is a dollar story, but of course we have a Bank of England meeting coming up and they will not have an easy choice because of the inflation picture."
Britain was the only country in western Europe with double-digit inflation in March. The BoE's next rate setting meting is on May 11.
The pound has largely managed to cling to the coattails of the resurgent euro, and on Thursday the European single currency was up 0.1% at 88.67 pence, within its recent range.
By contrast the euro hit a one year high against the dollar on Wednesday. [FRX/]
The pound's moves against the tumbling Australian dollar have been particularly dramatic, and it hit at 14-month high of A$1.8929 on Wednesday, a near 10% gain since the pound's early Feb low.
(Editing by Alexander Smith)