Sterling rose yesterday as investors welcomed the British government's emergency Budget, and after a Bank of England policymaker broke ranks and called for an early interest rate rise.

The European single currency meanwhile edged upwards against the dollar as traders awaited an interest rate decision from the US Federal Reserve.

In late morning deals, the pound gained to $1.4902 from $1.4810.

The euro edged upwards to $1.2285 from $1.2270 in New York late on Tuesday.

"The pound recovered some of the losses of the last few days as the threat of the UK losing its AAA credit rating receded following the emergency Budget," said TorFX analyst Tony Redondo.

"The government announced a series of measures in the biggest budget-deficit cuts in a generation, seeking to guard the top credit rating without stifling economic recovery."

Britain's Chancellor of the Exchequer George Osborne defended his deficit-slashing emergency Budget on Wednesday, arguing that the previous government had left the public finances in a "massive mess".

Mr Osborne slapped a levy on banks, ramped up taxation on goods and services, froze public sector pay and cut welfare spending in an attempt to curb the public deficit.

The pound also won ground yesterday after it emerged that a Bank of England policymaker wanted it to raise British interest rates to 0.75 per cent from a record low level of 0.50 per cent.