By Harry Robertson
LONDON (Reuters) -The pound struggled for direction on Tuesday after data showed U.S. inflation slowed slightly in November and that British wage growth cooled in October.
Sterling was last up 0.07% at $1.2563, having traded at around that level for most of the day. The euro was last up 0.22% at 85.93 pence.
U.S. consumer prices rose 3.1% in the year to the end of November, data showed on Tuesday, down slightly from a 3.2% rate in October. Month-on-month, prices rose 0.1%.
Currencies bounced around but ended up broadly where they were before the release, with the data almost completely in line with analyst expectations.
The pound fell slightly in the morning session in Europe after data showed that British earnings excluding bonuses were 7.3% higher than a year earlier in the three months to October, down from 7.8% in September. Economists expected a fall to 7.4%.
The Bank of England sets interest rates on Thursday and the data opened up "the risk that some of the three hawks who voted for a hike in November switch to favouring a hold now," said Chris Turner, global head of markets at lender ING.
Economists and traders think the bank will almost certainly hold interest rates at 5.25%. But they will be listening closely for hints about when borrowing costs might start to fall.
The Federal Reserve is due to set interest rates on Wednesday, before the European Central Bank on Thursday. Both institutions are also expected to hold rates steady.
Sterling touched a three-month high of $1.2733 per dollar at the end of November as U.S. bond yields fell sharply on hopes the Fed will start cutting rates early next year. The euro fell to a three-month low against the pound on Monday at 85.5 pence.
Market players think the BoE is likely to hold rates a little longer than both the Fed and the ECB, raising the appeal of sterling.
Yet Ashley Webb, UK economist at Capital Economics, said Tuesday's wage data would likely boost bets that the BoE may cut rates "as soon as the middle of next year". He said the data "leaves our forecast for rate cuts to start late in 2024 looking a bit more challenging".
{{2126|The dodollar index, which tracks the greenback against six peers, was last down 0.14% at 103.92.