Forex - Pound sharply lower after weak U.K. inflation data

The pound fell to two-month lows against the dollar on Tuesday and was weaker against the euro after data showed that the annual rate of inflation in the U.K. dropped to the lowest level in more than a year in October.

GBP/USD fell 0.79% to 1.5863, the lowest since September 13, during European morning trade, down from Monday’s close of 1.5964.

Cable was likely to find support at 1.5775, the low of September 13 and resistance at 1.5900.

Sterling dropped after the Office for National Statistics said the annual rate of inflation in the U.K. slowed to 2.2% in October, the lowest since September 2012, from 2.7% the previous month. Economists had expected the inflation rate to slow to 2.5%.

The ONS said the drop in inflation was mainly due to lower prices for motor fuel, airfares, second-hand cars and university tuition.

Inflation was 0.1% higher from a month earlier in October, below expectations for a 0.3% rise.  

The core inflation rate, which excludes energy, food, alcohol and tobacco, slowed to 1.7% year-over-year, the lowest rate since September 2009, from 2.2% in September.

The retail price index rose 2.6% in October, below forecasts for a 3% increase, after rising 3.2% in September. 

The data also showed that the house prices index climbed 3.8% last month, below expectations for a 4.1% gain.

Demand for the dollar continued to be underpinned after last week’s strong U.S. jobs report spurred speculation that the Federal Reserve may start winding down its USD85 billion-a-month asset purchase program before the end of the year.

Elsewhere, the euro rose to one-week highs against sterling, withEUR/GBP advancing 0.51% to 0.8427.

Data released earlier Tuesday showed that the annual rate of inflation in Germany, the euro zone’s largest economy, slowed to 1.2% in October, the lowest level in more than three years, from 1.4% in September.

The data added to concerns over weakening demand in the euro area, after the European Central Bank surprised investors with a rate cut last Thursday.