Investing.com – The pound fell to the day’s lows against the dollar on Tuesday after the latest UK inflation report showed that while the cost of living rose in January the increase disappointed expectations for an even sharper rise.
GBP/USD touched lows of 1.2460, down from around 1.2491 ahead of the data and was last at 1.2476, off 0.38% for the day.
Consumer prices rose 1.8% compared with a year earlier, the Office for National Statistics said, slightly below economists’ expectations for a 1.9% rise and up from 1.6% in December.
It was the highest rate of inflation since June 2014.
Consumer prices fell 0.5% in January from a month earlier, in line with economists’ expectations.
Earlier this month, the Bank of England said it sees inflation running at 2% this year, slightly higher than its previous forecast of 1.8% made in its November inflation report.
The BoE expects inflation of 2.7% next year, which is well above its target rate of 2%.
Much of the increase in inflation is the result of the weaker pound, which is making imported goods more expensive.
The data added to concerns that the drop in the pound since the June Brexit vote will continue to erode consumers spending power in the coming months.
Retail price inflation rose by 2.6% in January compared with the same month in 2015, the ONS said.
Excluding oil prices – which have risen sharply in recent months – and other volatile components such as food, core consumer price inflation was 1.6%, compared with economists’ expectations for 1.8%.
Sterling was also lower against the euro, with EUR/GBP rising 0.59% to 0.8509 from around 0.8480 earlier
The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, was down 0.12% to 100.89, pulling back from Monday’s high of 101.11, the most since January 11.
Investors remained cautious as they awaited testimony from Federal Reserve Chair Janet Yellen later in the trading day.