Sterling was hurt by soft UK inflation data released on Tuesday. CPI fell to 0.5 percent year-on-year in December, the lowest in 15 years, since May 2000. The figure was down from 1 percent in November. Tumbling oil prices impacted consumer prices.
According to the Office for National Statistics (ONS), the month-on-month figure was lower than expected at 0.0 percent, so it was flat in December, following a 0.3 percent drop the month before. Economists had forecast a slight uptick of 0.1 percent.
The Bank of England has a 2 percent target inflation rate so since the December CPI rate is more than 1 percentage point below, it means the BoE Governor Mark Carney will have to write a letter to the government – to Chancellor of the Exchequer George Osborne – explaining why inflation is off target by this amount. The letter is expected to be published in mid-February.
The pound fell to a low of $1.5075 before steadying to break even on the day.
Many still expect the Bank of England to begin hiking interest rates later this year.