LONDON, Feb 29 Reuters The pound was set for a small monthly decline against both the dollar and the euro on Thursday, on a busy day for inflation data elsewhere in the world, while investors in Britain39;s focus began turning to next week39;s budget.

Sterling was last down 0.06 against the dollar at 1.2654 and heading for a monthly decline of 0.26.

It also softened on the day and the month versus the euro, which was up a fraction on Thursday at 85.66 pence and up 0.47 in February, albeit after a sharp fall at the start of the year.

The pound has been consolidating at higher levels this month after strengthening in January, said Lee Hardman senior FX strategist at MUFG in a note to clients.

We continue to hold a short EURGBP trade recommendation which is befitting from the higher yields on offer in the UK but has struggled to break below support at the 0.8500level this month.

The main event in world markets on Thursday was the release of U.S. PCE inflation, the Fed39;s preferred gauge, which showed U.S. prices picked up in January, but the annual increase in inflation was the smallest in nearly three years, keeping a June interest rate cut from the Federal Reserve on the table.

The move was in line with expectations and did little to move currencies.

Euro zone inflation dipped further this month, according to data also released on Thursday, strengthening the case for the European Central Bank to cut rates, though investors were nervous about changing ECB pricing…