Sterling fell against the dollar and the euro on Tuesday, weighed down by US bank and real-money selling which triggered stop-loss orders in thin trading conditions. Data showing an expected slowdown in UK consumer inflation in July added to pressure on the currency, although prices remained higher than the Bank of England's inflation target of 2 percent.
Following the data, BoE Governor Mervyn King reaffirmed his view that high inflation was driven by temporary factors. Analysts said the figures did little to change the view that UK interest rates will stay at a record low 0.5 percent for now. Annual UK CPI slowed to 3.1 percent in July from 3.2 percent in June. The reading was the lowest since February, but was the eighth straight month that it has exceeded the BoE's 2 percent target. By 1554 GMT, sterling was down around 0.5 percent versus the dollar at $1.5585, after falling to $1.5563, as traders reported selling from a major US bank in thin liquidity, hitting stop-losses through $1.5600.
The pound had risen to a session high just shy of $1.5700 in morning trade but the technical outlook was turning negative. The euro traded 0.8 percent higher at 82.50 pence, not far from the day's high of 82.59 pence. It pulled away from 81.65 pence hit on Monday, its lowest since late June, with traders reporting demand from real-money accounts, which triggered stop-loss orders at 82.50.