LONDON, Sept 27 Reuters Sterling fell to a fresh sixmonth low against a strengthening dollar on Wednesday as markets are pricing in that the Bank of England BoE is done hiking interest rates as the economy deteriorated, while British inflation subsided.

Sterling is set for the biggest monthly drop since August 2022, down more than 4 in September, as money markets are pricing in no further BoE rate hikes this year, according to LSEG data. Traders also expect the central bank to start cutting rates next summer.

The BoE kept rates on hold last week the first meeting at which it had done so since December 2021 on the back of signs economic growth is slowing and data showing a surprise cooling in Britain39;s inflation.

Sterling dropped 0.06 to 1.2150 , after briefly touching 1,2135, its lowest since March 2023. It has been steadily sliding from a 15month high in July, but is still up almost 18 from a year ago when former British Prime Minister Liz Truss39; borrowing plans drove it to a record low.

The British currency rose 0.1 against the euro to 86.87 pence, after touching on Tuesday its lowest of 87.05 pence against the single currency since May.

The capitulation in terminal rate expectations, allied to the realization that the BoE is now done hiking rates due to building macro headwinds, underlines residual sterling headwinds, Jeremy Stretch, head of G10 FX strategy at CIBC Capital Markets, said.

Recent data showed British companies endured a much tougher…