At 0845 GMT, the pound was down 0.4% against the dollar at $1.12750 pence, and down 0.18% versus the euro at 87.220 pence

Wednesday's CPI data showed the consumer price index (CPI) increased by 10.1% in annual terms in September, in a new blow for households grappling with a cost-of-living crisis.

"The UK CPI was a little firmer than expected, but the impact on GBP was limited and if anything on the downside. Rising UST (U.S. Treasury) yields are dragging the greenback higher across the board, including against GBP," said Mizuho senior economist Colin Asher.

The inflation numbers continue a turbulent week for the currency, after Jeremy Hunt on Monday scrapped most of Prime Minister Liz Truss's planned tax cuts and shortened her huge energy price cap plan to six months from two years.

The U-turn on the fiscal plans prompted traders to curb their bets on the Bank of England raising interest rates.

On Wednesday investors were pricing in a 65% chance of a full percentage point hike at the next BoE meeting scheduled for Nov 3. Before Monday's U-turns, a move of that size had been fully priced in.

Another factor to consider for market players is the BoE's plans to start selling some of its huge stock of British government bonds, which will begin on Nov. 1, the central bank said on Tuesday.

"BMO currently have the bank going 100bps in November, but we can see the case for just 75bps if the Bank proceeds with asset sales and there are no further ruptures in the gilt market," said Stephen Gallo, European head of FX strategy for BMO Capital Markets.

The BoE said it was delaying its start date for the launch of its so-called quantitative tightening programme by a day from its previous schedule to avoid clashing with a government fiscal statement on Oct. 31.

Truss has so far defied calls for her resignation, though markets are increasingly considering the possibility of her imminent replacement.

"Political uncertainty is almost always bad for a currency but in this case the grown-ups are already back in control of fiscal policy," said Mizuho's Asher.

"The Truss agenda has already been binned. Thus, replacing Truss per se would probably have limited impact."

(Reporting by Lucy Raitano; Editing by Andrew Cawthorne)

By Lucy Raitano