By Lucy Raitano
LONDON (Reuters) - Sterling fell on Wednesday as traders stayed risk-averse and continued to digest data from Tuesday showing UK inflation unexpectedly held at 6.7% in September, raising the possibility of another rise in interest rates.
At 0851 GMT, sterling was down 0.3% against the dollar to $1.2106, and fell by the same degree against the euro at 87.03 pence.
"Sterling has been trading with its typical high beta to global risk conditions in recent days," said Nicholas Rees, FX market analyst at Monex Europe, with concerns around a potential energy price spike resulting from the crisis in the Middle East putting the pound under pressure again this morning.
The market is also waiting with bated breath for remarks from Federal Reserve Chair Jerome Powell at 1600 GMT.
"Sterling is falling for a third straight day on dollar strength owing to haven flows, and as U.S. Treasury yields hit a 16-year high, the expectation is that the Federal Reserve will keep interest rates higher for longer," said Fiona Cincotta, senior financial markets analyst at City Index.
Domestically, traders are still poring over Monday's wage data and Tuesday's inflation numbers. The hotter-than-expected consumer price print followed data showing that growth in British workers' regular pay slowed from a previous record high and job vacancies also declined.
Signs of a softer labour market boosted the chance the Bank of England will leave rates unchanged at its next meeting, while the inflation figures did the opposite.
"The modest undershoot on the wages data contrasted with a slight beat on inflation," said Monex's Rees.
"All-in-all though, both show signs of slowing inflationary pressures and with BoE speakers having recently set a high bar for restarting rate hike in our view, we don’t think this round of data moves the needle for either the MPC of the pound."
Money markets are placing an 82% chance that the BoE will hold rates unchanged in its coming meeting in November.
UK retail sales for September are due on Friday, while a preliminary read on October business activity lands next week.