LONDON, July 26 Reuters The pound edged up against the dollar on Wednesday, ahead of a monetary policy decision from the U.S. Federal Reserve and dropped against the euro, which staged its biggest daily fall against the pound in five months the previous day.

Sterling was up 0.1 against the dollar at 1.2913 and down 0.1 against the euro , which traded at 85.81 pence.

The euro tumbled by 0.7 against the pound on Tuesday, marking its largest oneday decline since February, after data showed economic growth is slowing across Europe as tighter credit conditions kick in.

However, a day ahead of a rate decision by the European Central Bank, few investors were overly willing to commit to pushing the euro much lower, given the expectation for the ECB to raise interest rates again and possibly signal more are in the pipeline.

This is entirely a eurodriven move and does not represent some bullish reappraisal of sterling39;s prospects, ING strategist Chris Turner said.

Given that we are mildly negative on the euro going into tomorrow39;s ECB meeting and that UK rates might be dragged higher by U.S. rates later today, we would say eurosterling could have a little more downside to the 85.20 area over the next couple of sessions, Turner said.

The major driver for the currency market on Wednesday was the runup to the Fed39;s decision on monetary policy later on.

Money markets show traders fully expect U.S. rates to rise by another 25 basis points from their current 5.005.25 range…