Weak UK Inflation Data Weighs On Pound, GBPUSD at 4-Month Low

The pound dropped to a four-and-a-half month low against the dollar after a report showed UK inflation disappointed in July, giving the Bank of England more room to delay raising interest rates.

The fall in inflation eases pressure on the Bank of England, which is tasked with keeping inflation close to 2 percent, to raise interest rates in the short term.

Data from the Office for National Statistics showed that the inflation eased to 1.6 percent in July from 1.9 percent in June. Inflation was forecast to slow to 1.8 percent.

Output prices slipped 0.1 percent annually, while input prices plunged 7.3 percent year-on-year in July, faster than the 4.5 percent decline in June.

Pound fell sharply against the dollar, pushing the GBPUSD pair to trade at 4 month low at $1.66442 after opening at $1.67250. The pair so far fell to an intraday low of $1.66337.

The greenback remained supported ahead of reports on building permits, housing starts and consumer inflation.

Euro pared losses against the pound in European trades Tuesday, trading at 080204 after starting the day at 0.79867. The EURGBP pair so far hit intraday high at 0.80231.

The pound had strengthened broadly on Monday after BoE Governor Carney said over the weekend that interest rates could rise before wage growth picks up.

Investors were looking ahead to Wednesday’s minutes of the BoE’s August policy meeting for signs that the bank is moving closer to hiking borrowing costs.

Ongoing geopolitical tensions in the Middle East and Ukraine continue to dominate the headlines. Yesterday, Russia said the euro foreign ministers made little progress defusing tension in Ukraine, after reaching an agreement over a convoy of 300 Russian trucks carrying water, food and medicine to Ukraine