The pound (GBPUSD=X) headed lower on Wednesday morning as the dollar strengthened, while investors eye a key US inflationary report which may guide the timing of future Federal Reserve rate cuts.

The pound was down 0.3% to trade at around $1.32, pulling back from recent highs. Earlier in August, sterling had been as low as $1.27 against the dollar, but had clawed its way back to a two-month high on Tuesday.

The dollar also strengthened against gold (GC=F) following recent all-time highs for the haven commodity. Gold futures were down 0.4% by late-morning in London.

While sterling weakened against the dollar, it was up 0.2% against the euro (GBPEUR=X), heading towards levels last seen in late-July.

Despite its recent strength, the pound is still below levels seen before the Brexit vote eight years ago, noted Russ Mould, investment director at AJ Bell.

"This suggests that sterling could make further ground but it would be a brave person to take a strong view either way, given the huge number of variables involved," he said. "The dollar could get a bid if the wars in the Middle East and Eastern Europe escalate further, given the US currency’s have status, for example."

Mould also pointed to recent rate cuts by the Bank of England (BoE) and the potential path of inflation as factors troubling cable. The BoE cut rates to 5% from a sixteen-year high of 5.25% earlier in August.

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Markets are now priced for 100 basis points of cuts across the US Federal Reserve's three remaining meetings this year, compared with around 40 basis points for the BoE, according to Reuters.

Mould added: “It is just too hard to tell [the direction of GBPUSD]. Ultimately, near-term currency movements are dictated by positioning and leverage, and the trend may only be a friend for so long.

"Under normal circumstances, the appalling state of America’s federal finances, with a record national debt and galloping annual fiscal deficit, would weigh heavily on its currency, but a lot of other countries are in a similar situation, and with little public appetite for austerity in the form of spending cuts or tax rises to fix it. This may explain why gold is trading above $2,500 an ounce.”

Markets are looking to US economic growth figures on Thursday as well as jobs data for clues.

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