(Updates prices at 1120 GMT)

By Alun John and Kevin Buckland

LONDON/TOKYO, Oct 16 (Reuters) - Sterling tumbled to its

lowest in two months on Wednesday after softer than expected

British inflation data offered scope for the Bank of England to

cut rates more forcefully, while the euro was at a 10-week low

ahead of a European Central Bank meeting.

The pound dropped to as low as $1.2984, dipping under the

$1.30 level for the first time since Aug. 20, after data showing

the rate of annual consumer price inflation dropped to 1.7% in

September from 2.2% in August.

That was the lowest reading since April 2021, was under the

1.9% forecast by a Reuters poll of economists. It reinforced

bets on a BoE interest rate cut next month and made a further

cut in December more likely.

Sterling recovered a little ground in morning trading in

Europe and was last 0.42% lower on the day at $1.3018.

"The data is unequivocally dovish for the Bank of England

and paves the way for rate cuts at the two remaining meetings

this year," said Francesco Pesole FX strategist at ING.

"We think that has incidentally opened the door for a period

of underperformance by sterling," he said, adding they see the

pound trading well below $1.30 and the euro above 84 pence.

The common currency was last 0.44% higher on the pound at

83.67 pence.

SOLID DOLLAR

Moves elsewhere were less dramatic but the euro was at

$1.0891, steady on the day but pinned at its lowest since Aug 2,

having been hurt by traders pricing out rate cuts from the

Federal Reserve and including a potential election win by former

President Donald Trump - seen as a dollar positive - in their

thinking.

Investors will be closely watching the European Central

Bank's meeting Thursday, though if policy makers deliver the

currently priced 25 basis point rate cut and President Christine

Lagarde refrains from giving too many clues about the further

rate outlook, the market impact could be muted.

Across the Atlantic, traders have laid 92% odds for a

25-basis-point cut when the Fed next decides policy on Nov. 7,

with an 8% probability of no change, according to CME Group's

FedWatch Tool. A month ago, traders saw greater than 29% odds of

a super-sized 50-basis-point reduction.

Market pricing still strongly favours a total of 50 basis

points of easing this year, but comments from central bankers

overnight leaned hawkish. The Atlanta Fed's Raphael Bostic said

he pencilled in just one 25 basis-point rate reduction for this

year, while the San Francisco Fed's Mary Daly said "one or two"

cuts in 2024 would be "reasonable".

The dollar added 0.1% to 149.37 yen, not far from

Monday's high of 149.98 yen, the strongest since Aug. 1.

BOJ board member Seiji Adachi said on Wednesday the central

bank must raise rates at a "very moderate" pace and avoid hiking

prematurely, given uncertainties over the global economic

outlook and domestic wage developments.

The Australian and New Zealand dollars sagged as scepticism

widened over stimulus from top trading partner China.

The Aussie dropped as much as 0.51% to $0.6669, the

lowest since Sept. 12, before recovering to $0.6684, while the

Kiwi sank as much as 0.69% to $0.6041, a level last seen on Aug.

19.

"There's definitely been some building scepticism about

China's real commitment to the kind of fiscal support that would

be seen as really cathartic," and that is pulling down the

Australian and New Zealand currencies this week, said Ray

Attrill, head of FX strategy at National Australia Bank.

New Zealand's currency was also weighed down further by data

showing cooling inflation, keeping the door open for aggressive

easing by the central bank.