Sterling hits 7-week low as UK inflation undershoots forecasts

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Sterling fell to its lowest in seven weeks against the dollar on Tuesday after data showing British inflation undershot expectations in April, giving the central bank more leeway to ease policy in coming months.
Britain's inflation rate fell to 2.4% in April from 2.8% in March, with almost half of that drop coming from weaker petrol and diesel costs, and well below expectations of a 2.6 % reading.
Sterling fell to $1.5140 from $1.5212 as traders took the data as giving incoming Bank of England chief Mark Carney more room to ease monetary policy later in the year. The euro rose to 84.75 from 84.58 pence.
The pound has lost 6.7% against the dollar since the start of the year as the U.S. has shown more sustained signs of a recovery than the UK.
That has led investors to speculate that the Federal Reserve may phase out its bond-buying programme later this year. In contrast, the Bank of England is expected to expand its stimulus if a nascent recovery stalls anytime soon.
" The new governor will no doubt be keen to make his mark when he starts in July, and he may well opt for additional quantitative easing to further aid recovery," said Andy Scott, account manager at HiFX, a currency and cash deposit service provider.
" This possibility continues to hamper sterling's recovery from its dreadful start this year."
The pound had fallen to $1.4832, a 2-1/2 year low in March, but has since recovered. Its bounce could be losing momentum, partly due to growing doubts over Britain's relationship with its largest trading partner, the European Union.
A recession in the euro zone is also likely to keep investors wary of the pound, especially against the dollar.
Recent data has shown that the British economy is on the mend, having avoided a triple-dip recession, but risks of a euro zone recession could hamper a sustained recovery.
" Tomorrow's BoE minutes will be of interest in assessing the impact of recent positive data on the Monetary Policy Committee's stance towards further quantitative easing," Morgan Stanley said in a note. " Overall, we expect the sterling/dollar decline to be extended towards $1.4840."