Feb 13 Reuters Sterling edged lower on Monday at the start of a dataheavy week in which investors will scan inflation prints from the UK and the U.S. to make bets on the pace of further interest rate hikes.

UK inflation likely eased further in January to 10.2 from 10.5 in December, having seemingly peaked at 11.1 in October. The data is due on Wednesday.

This is seen strengthening the case for the Bank of England to slow its pace of interest rates raises after it dropped its reference to act forcefully against inflation earlier in February, which markets took to signal that the central bank may be nearing the end of its ratehiking cycle.

The pound was down 0.2 at 1.2035 against the dollar, while against the euro it was largely stable at 88.70 pence after the single currency marked its sharpest weekly decline since October against sterling.

We think markets will be given reasons to consolidate their view around a 25bp hike from BoE in March, but expectations of further tightening may ultimately prove unfunded, said Francesco Pesole, FX strategist at ING.

BoE ratesetters including Catherine Mann and Jonathan Haskel have come out in favour of more interest rate hikes since the meeting, while Chief Economist Huw Pill said it was important not to raise borrowing costs too high.

The EURGBP drop could extend to 0.8800 but we think markets are running out of reasons to stay bearish on the pair for longer, Pesole said.

Other data this week is expected to show that…