Sterling edged lower versus the dollar on Wednesday but remained close to the year's high before a decision on U.S. interest rates from the Federal Reserve later in the day.

The pound earlier touched a four-week peak against the dollar but retreated after U.S. private sector jobs data came in stronger than expected.

However the pound stayed close to the high just below the psychologically key $2 level as expectations of a hefty Fed rate cut later in the session are increasing sterling's yield appeal.

"There is a lot of focus on the Fed which is set to cut quickly, while it's likely that the Bank of England is not set to cut as aggressively as many initially believed, so the pound holds the balance of power," said Robert Minikin, senior FX strategist at Standard Chartered.

At 1454 GMT the pound was trading down 0.1 percent at $1.9881, having touched $1.9949, its highest since the start of the year and well above the $1.9335 it fell to last week.

The euro was up 0.15 percent at 74.33 pence having traded as high as 76.13 pence earlier this month.

UK mortgage approvals fell in December to the lowest since 1999, data showed on Wednesday piling further pressure on the Bank of England to cut interest rates next week from the current 5.5 percent.

But policymakers' room for manoeuvre is limited by rising prices. A survey showed inflation expectations reaching record levels this month.

Investors are still pricing in up to four rate cuts from the Bank of England this year. However, the pound's interest rate differential against other currencies is expected to widen as expectations of rate cuts from the European Central Bank and Fed have increased.

Sourced by Reuters.