Sterling treads water as markets await Ukraine talks, UK CPI

By Jaspreet Kalra

(Reuters) -Sterling treaded water against the dollar on Monday as investors focused on a pending meeting between U.S. President Donald Trump and leaders from Ukraine and Europe as well as UK consumer inflation data due later in the week.

Sterling was flat at $1.3547 on the day but has gained about 2% against the dollar over August so far, helped by upbeat economic data and a hawkish rate cut by the Bank of England earlier in the month.

Britain's consumer inflation data for July is due on Wednesday and analysts at Goldman Sachs reckon that the domestic macro backdrop will continue to be a key source of volatility for the currency’s performance versus European peers.

Goldman Sachs forecasts imply that core inflation in Britain edged down to 3.62% last month, from 3.66% in June and 9 basis points below the level implied by the Bank of England's projections.

"Even with regional underperformance, though, we continue to expect sterling’s high beta to the Euro to support an upward path in GBP/USD," analysts at Goldman Sachs said in a note.

On Monday, the euro was down 0.1% against sterling at 0.8624.

"We do think that the UK's CPI data is going to come in a little hotter this week. That should temporarily support the pound but PMI (data) on Thursday should reverse that," said Nick Rees, head of macro research at Monex Europe.

"We think you're going to see increased divergence between the UK and euro zone economies."

The major economic event for global markets this week will be the Kansas City Federal Reserve's August 21-23 Jackson Hole symposium.

Fed Chair Jerome Powell is due to speak on the economic outlook and the central bank's policy framework on Friday.

Money markets are currently pricing in an 85% chance that the Fed will cut policy rates by 25 basis points next month.

(Reporting by Jaspreet Kalra; editing by Mark Heinrich)