The British pound resumed its drop against majors after the slower than predicted drop in U.K. inflation, ahead of the release of important data later in the week.

The sterling led the decline on Tuesday trading as it plunged after a report showing U.K. CPI for the year ended April dropped to 2.4%, the lowest level in seven months, from a prior of 2.8%, lower than median forecasts of 2.6%.  

The faster than expected deceleration in prices raised speculations the BOE may rethink about expanding stimulus to bolster the nascent recovery, thereby putting downside pressure on the pound.

Eyes will focus on BOE minutes for May’s monetary decision, as well as retail sales and public finance data for April due tomorrow, while on Thursday the first-quarter GDP will show whether there was any revision to the upbeat 0.3% growth.    

Against the euro, the pound dropped to take the pair up to 0.8497 from a low of 0.8439, where it may halt its gains at the current level as it faces resistance from daily SMA 100.

Later in the week, the euro may be affected by important data including European manufacturing and services and German business confidence for May, plus EU leaders Summit.   

As for the GBPUSD, it dropped sharply from a high of 1.5275 to trade around 1.5140 after it faced resistance at 1.5280, which represents daily SMA 50, while the breach of support at 1.5190, which constitutes 23.6% Fibonacci Retracement to the downside trend that began on January 3, paved the way for today’s drop.

The U.S. dollar, which advanced around 2.50% against a basket of six major currencies in the previous two weeks, on the other hand, resumed its advance after yesterday’s drop ahead of  Federal Reserve Chairman Ben Bernanke`s testimony to Congress on Wednesday and minutes of its April 30-May 1 meeting later in the week.

The greenback’s recent advance is a net result of the improvement seen in the U.S. data which suggested the Fed may scale back stimulus earlier than envisaged, giving an uplift to the dollar as it will avoid oversupply. 

The dollar rebounded today to trade around 102.80 per yen after hitting a low of 102.06, following Japan’s Economy Minister Akira Amari announcement that he wouldn’t be drawn on where he thought its eight-month slide versus the dollar might end, pouring cold water on Monday’s comments at which he referred that further weakness in the yen may hurt “people’s lives.”  

Amari’s comments strengthened speculations the yen will continue its downside trip targeting 105, which represents 61.8% Fibonacci Retracement to the downside trend that began in July 2007.  

Most Asian stocks fell today as investors are becoming more cautious head of U.S. Federal Reserve chief Ben Bernanke`s testimony on Wednesday as many are paring back on expectations that Feds will start reducing its bond-buying program anytime soon.

“Given the strong rally in global equity markets, a pause for breath is probably not going to cause much of a stir but we remain cautious on the longevity of the rally due to the continuing dichotomy between economic data and risk asset performance”, said Mitul Kotecha.

- The MSCI Asia Pacific Index fell 0.1% to 144.27 as of 14:19 in Hong Kong after gaining 0.1% earlier in the day

Nikkei hit a fresh five-and-a-half year high at 15,388, yet the index pared some of the gains after real estate stocks suffered as the yen continued to trade below 103. Meanwhile, Mitsubishi rose 21% on news it has partnered with Nissan to improve its market share.

- Nikkei 225 closed 0.13% higher at 15381.02

- Topix closed 0.07% higher at 1270.39

In Australia stocks fell after the minutes from the Reserve Bank of Australia`s latest policy meeting revealed weakening growth and slowing business investment and provided little guidance about the future of the central bank’s monetary policy.

- S&P/ASX 200 closed 0.56% lower at 5180.06

- New Zealand’s NZX 50 closed 0.17% lower at 4590.84

In China stocks rose however the gains were capped by the losses in the banking sector seen after Goldman Sachs sold its entire stake of $1.1 billion in Hong Kong-listed Industrial and Commercial Bank of China.

- Hong Kong’s Hang Seng closed 0.54% lower at 23366.37

- China’s Shanghai Composite Index closed 0.22% higher at 2305.11

In South Korea, the index managed to touch a fresh seven-week high at 1,995 however it moved off those levels driven by the losses seen across Asia.

- Kospi closed 0.07% lower at 1981.09

Cost of living in the United Kingdom eased unexpectedly in April, as figures from the Office for National Statistics in London showed today that inflation, measured by the Consumer Price Index (CPI) fell on both the monthly and yearly basis.

CPI logged a 0.2 percent rise in April, down from 0.3% in March and 0.4% of analysts` forecast. From a year earlier, CPI growth eased to a pace of 2.4%, compared with 2.8% registered a month ago, missing 2.6% expected.

Core CPI, a gauge of inflation excluding volatile items such as food and fuel prices, eased more than expected as well to a growth rate of 2.0%, down from 2.4% in March. Analysts called for a median rate of 2.3% growth.

ONS data also showed that Retail Price Index (RPI) eased to 0.3% from 0.4% through April, while analysts called for a flat estimate. From a year ago, RPI growth fell to a rate of 2.9% from 3.3%, and 3.1% forecasted.

The Office for National Statistics reported on Tuesday UK PPI output for April dropped 0.1 %  from 0.3 %  revised to 0.2% in March, while analysts expected 0.2 percent gain.

UK PPI output for the year ending April declined to 1.1 %  from a revised 1.9 %  originally reported at 2.0 %  in the year ended March, missing analysts’ expectations of 1.4 % .

Core PPI output remained steady at 0.1 %  yet missing forecasts of 0.3 % . From a year earlier, core PPI output fell to 0.8 %  from 1.3 % , while analysts expected 0.9 % .

The producer price input came at 2.3 %  drop, down from %  in March and sharply deeper than 1.3 %  drop expected.

On a yearly basis, PPI input dropped 0.1 %  compared with previous revised reading of 0.8 %  originally reported at 0.4 %  and missing analysts’ median estimate of 0.3 % .