Currency markets brace for US inflation data

Currency markets were in a holding pattern on Tuesday, with traders' reluctance to make large bets ahead of US inflation data - important for Federal Reserve policy expectations - capping moves after UK jobs data and an Australian rate cut.

A moderate reading on US price pressures could cement bets for a Fed rate reduction next month, which increased after last week's soft payrolls data.

But if signs emerge that US President Donald Trump's tariffs are stoking inflation, that could pressure the central bank to stay on hold.

That in turn would fuel further tensions with Trump, who has urged the Fed to cut rates.

Economists polled by Reuters expect core CPI to have risen 0.3 percent in July, pushing the annual rate higher to 3 percent, and traders currently put the odds of a quarter-point rate cut on September 17 at about 89 percent.

Ahead of the data, due at 1230 GMT, the dollar was up 0.1 percent to 148.31 yen , while the euro was flat at $1.1613.

Sterling was also steady at $1.3434, little moved by data that showed Britain's jobs market weakened further, albeit more slowly, while wage growth stayed strong - the latter underscoring why the Bank of England is so cautious about cutting interest rates.

The numbers seem unlikely to change expectations for the BoE, which cut rates only last week in a tight 5-4 vote.

Sanjay Raja, chief UK economist at Deutsche Bank, said there were "marginal positives" in the data and there was nothing to suggest labour market loosening was accelerating, but he added "we aren't out of the woods yet".

Currency markets largely ignored Trump's decision to in sharply higher tariffs on Chinese imports for another 90 days, as widely expected.