LONDON, Jan 15 Reuters The pound held steady on both the dollar and euro on Wednesday as the relief investors felt from a coolerthanexpected inflation print that sparked a rally in gilts outweighed the traditional relationship between the currency and yields.

The pound was choppy, but was last around flat on the day at 1.2209 as investors digested data that showed British inflation unexpectedly slowed last month to 2.5 year on year.

That was broadly where the currency was before the numbers were released.

Core measures of growth, tracked closely by the Bank of England, fell more sharply and as a result, traders increased bets on another BoE rate cut in February.

They now see around an 80 change of a 25basis point easing, up from around 60 before the data, a shift which supported underfire British government bonds known as gilts.

The British benchmark 10year yield dropped 6 basis points at 4.82 and the rate sensitive twoyear yield own nearly 8 bps, outperforming German and U.S. peers.

Gilts have been at the centre of a global government bond selloff this month as higher borrowing costs threaten the government39;s strained finances.

This spilled over to the pound which has weakened on the dollar and euro even as the difference between British yields and those on U.S. Treasuries or German Bunds moved in what would be seen as its favour in typical times.

This relationship continued on Wednesday morning, with the pound holding steady as gilt yields fell.

The reason…