UK: After falling to a two-week low versus the stronger euro on Wednesday, sterling's value against both currencies stabilised as data revealed that British inflation rose to its highest level in 40 years, though only marginally more than expected.

The inflation statistics increased the odds that the Bank of England will decide to raise interest rates by 50 basis points next month, but sterling's movements were restricted because the amount of the rate increase had already been factored in, traders said. After falling to its lowest level against the euro since July 7 in earlier trade, the pound dipped 0.1 percent lower to 85.27 pence uring the day.

After reaching an 11-day high on Tuesday, the British pound was unchanged at $1.2000 against the greenback. The extent of the hike in borrowing costs, which has not been seen in Britain in 25 years, was on the table but was not "locked in," according to Governor Andrew Bailey.

From May's 9.1 percent to June's 9.4 percent, annual consumer price inflation increased, reaching its highest level since February 1982. This was higher than the average estimate of 9.3 percent in a Reuters survey of experts. Unless Italian politics push the euro back lower, sterling will likely continue to be a function of dollar movements, while the euro may maintain support against pound.

Data released on Tuesday revealed that the unemployment rate in Britain remained at 3.8 percent in the three months leading up to May, while regular pay growth increased a little to 4.3 percent, supporting predictions of a larger BOE interest rate increase the following month. For the sixth time since December, the central bank is predicted to raise interest rates.

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