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Sterling unfazed by higher inflation, still driven by dollar

* Graphic: World FX rates in 2020 tmsnrt.rs/2egbfVh

* Graphic: Trade-weighted sterling since Brexit vote tmsnrt.rs/2hwV9Hv

LONDON, Aug 19 (Reuters) - Sterling remained driven by the weaker U.S. dollar on Wednesday in thin August trading, even though British inflation jumped unexpectedly last month to its highest since March.

Last trading at $1.3259, up 0.2% on the day, the pound mirrored a trend higher in major currencies against the greenback, though it remained below the eight-month high of $1.3276 it touched the day before as the dollar weakened.

Against the euro, sterling was flat at 90.14 pence .

UK annual consumer price inflation rose to 1.0% in July from 0.6% in June, as clothing stores refrained from their usual summer discounts as they reopened after the coronavirus lockdown. That was above all forecasts in a Reuters poll of economists that had pointed to an unchanged rate.

“The Bank of England is unlikely to draw conclusions just yet from this data ... (therefore) market reaction is likely to remain muted,” said Derek Halpenny, head of research at MUFG.

“GBP/USD is now above pre-COVID levels although much of that is dollar related. The BoE trade-weighted index remains weaker,” Halpenny said.

“That’s a reflection of continued uncertainties like the potential for the BoE adopting negative rates and the outcome of the trade negotiations between the EU and the UK.”

Six-month risk reversals - the difference between put and call options - suggest money managers prefer selling the pound over buying it in the period which incorporates Britain’s clear exit from the European Union in December. (Reporting by Olga Cotaga Editing by David Holmes)

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