May 15 (Reuters) - Sterling hit its highest level in almost two weeks versus a weakening dollar and was broadly unchanged against the euro on Wednesday ahead of key U.S. inflation data.
The pound fell on Tuesday after Bank of England (BoE) chief economist Huw Pill said the central bank might be able to consider cutting interest rates over the summer.
Meanwhile, British wages grew more than expected. Still, other figures suggested the labour market is losing some of its inflationary heat, keeping the BoE on alert about when to cut interest rates.
Market bets on future BoE rate cuts remained roughly unchanged, discounting an around 50% chance of a first move in June while fully pricing in a 25 basis point (bps) rate cut in August and more than 50 bps by year-end.
The dollar dipped to a one-month low versus the euro on Wednesday amid lower Treasury yields as traders braced for a key U.S. inflation report later in the day that could dictate the path of Federal Reserve policy.
Sterling rose 0.18% to $1.2610 after hitting $1.2616, its highest level since May 3.
"From here, some modest pound weakness is likely given the UK has more room to cut rates than the European Central Bank (ECB) does, and rate moves are by far the biggest driver of exchange rates at the moment," said Kit Juckes, foreign exchange strategist at SGCIB Bank.
"But in the longer run, rates that are about 150 bps higher than the euro zone’s won’t just cap the euro versus the pound, but help it break lower," he added.
Sterling rose 0.01% against the single currency to 85.90 pence per euro.
(Reporting by Stefano Rebaudo; editing by Emelia Sithole-Matarise)
