Sterling dipped versus the dollar on Tuesday as investors shrugged off stronger-than-expected UK inflation data, which failed to dent expectations that interest rates will probably stay at very low levels for some time. Data showed Britain's annual consumer price rate jumped to a 17-month high of 3.7 percent in April, above forecasts for 3.5 percent, driven by big rises in taxes on alcohol and tobacco, as well as increased food and oil prices.
However, BoE Governor Mervyn King said in a letter to finance minister George Osborne - prompted due to CPI being more than 1 percent above the BoE's 2.0 percent target - that the rise in inflation was temporary and should wane. This chimed with the dovish tone of the BoE's inflation report last week, when the central bank's forecasts showed CPI below 2 percent on a two-year horizon even with no rise in interest rates.
By 1545 GMT, sterling was down 0.3 percent against the dollar at $1.4428. It had briefly risen to a session high of $1.4522 in a knee-jerk reaction to the data, but failed to hold gains. The euro was steady against the pound at 85.61 pence. Sterling's trade-weighted index was at 78.4, having earlier fallen to a six-week low of 78.2, driven by the pound's earlier intraday falls against the euro.