The pound trod water on Tuesday as traders held their fire ahead of U.S. inflation data that could be key in dictating the near-term direction of the dollar against other currencies.

British data earlier in the day showed UK workers' wages grew slightly less quickly in the three months to September, but remained close to their record pace.

The figures will likely do little to ease the Bank of England's concerns about inflationary pressures and did nothing to change market-based forecasts for a UK rate cut in June 2024 at the earliest.

Most major central banks are widely expected to have wrapped up their campaign to raise interest rates, so the focus has shifted to when the first cuts will materialise.

Unlike UK wage data, Tuesday's U.S. inflation report could do more to dictate the near-term outlook for sterling, given that it will shape those expectations and either give the dollar another boost, or knock it back.

"There is not enough in this jobs report to see big FX or rates moves and sterling is likely to remain in a narrow trading range, albeit to the firmer side, ahead of the U.S. CPI this afternoon and the UK CPI data tomorrow," MUFG head of research for global markets Derek Halpenny said.

Sterling was up 0.1% against the dollar at $1.2284 and flat against the euro at 87.11 pence.

The pound has surrendered a lot of this year's gains, but, together with the Swiss franc, is one of only two G10 currencies to still hold in positive territory against the dollar in 2023.

Sterling is up around 1.6% so far, while the Swiss franc is up 2.5%.

Speculators now hold a modest short position in sterling, having whittled away at the largest long position in nine years over the past few months, according to weekly data from the U.S. financial markets regulator.

Wednesday's UK consumer price index (CPI) is expected to show inflation slowed to an annual rate of 4.8% in October - the lowest for two years - from September's 6.7%, while the core rate is forecast to have eased to 5.8% from 6.1%.

The BoE has raised interest rates by a record 5.15 percentage points in 22 months. During that time, headline inflation rose to a peak of 11% last October and has gradually declined mostly as increases in energy and food costs have subsided.

"Cooler inflation could offset concerns about the hotter-than-forecast wage growth, which is at least trending in the right direction even if slower than expected," City Index market strategist Fiona Cincotta said of Wednesday's CPI report.

The pound on Monday showed little reaction to UK Prime Minister Rishi Sunak's reshuffle of his cabinet, which saw the return of former premier David Cameron to the role of foreign minister and the sacking of interior minister Suella Braverman.


(Reporting by Amanda Cooper; editing by Mark Heinrich)