LONDON, Aug 10 Reuters Sterling rose against a weakening dollar ahead of the release of U.S. CPI inflation data on Thursday, while UK housing prices added to evidence that the outlook for the British economy remains grim.

The pound was 0.4 higher against the dollar at 1.2771 and 0.1 higher versus the euro at 86.35 pence, after earlier touching it lowest against the single currency in almost a week .

Economists polled by Reuters expect July U.S. consumer price inflation to have risen slightly to an annual 3.3, while the core rate, which excludes the volatile food and energy segments, is forecast to rise 0.2 in July, for an annual gain of 4.8.

The key data could help firm market expectations that the Federal Reserve has finished raising interest rates, if inflation moderates and the prospect of a soft landing increases.

The combination of a lightening of dollar positions ahead of the CPI, allied to risk gains benefitting sterling via its high beta status, have encouraged cable to test the 50day moving average, said Jeremy Stretch, head of G10 FX strategy at CIBC.

But he sees risks that U.S. inflation could be higher than expected, while UK macro headwinds remain substantive.

That points towards sterling maintaining a bias for significant August and September underperformance, he added.

British house prices saw the most widespread falls since 2009 last month as interest rates hit a 15year high, while rents surged by the most since 1999 as more landlords sold up,…