LONDON: Sterling was volatile on Tuesday, struggling to stretch gains after data showed British annual inflation edging up to a 12-month high last month, with appetite for riskier assets waning and dragging down the currency.
The safe-haven yen and the low-yielding euro rose as European shares dropped and oil prices pared earlier gains. The pound often moves in sync with global stock prices, and any weakness in shares leads to a sell-off in sterling.
Sterling had fallen sharply on Monday after Bank of England policymaker Ian McCafferty said inflationary pressures had fallen. Data on Tuesday showed that while the consumer price index was at -0.8 percent on the month, the annual inflation rate rose to 0.3 percent, its highest since January 2015.
That was in line with economists' expectation in a Reuters poll.
Sterling fell to $1.4450 by 1010 GMT from around $1.4495 just before the inflation data which was released at 0930 GMT. It was still up 0.1 percent on the day.
The pound gave up its gains against the euro. The euro was up 0.15 percent against the pound at 77.425 pence, having traded at 77.085 pence before the data was released.
"Inflation may continue to slowly climb up, but in the grand scheme of things it remains at a very low level. Plus, there are still many factors out there that have the potential to cause havoc...not least the UK's referendum on whether to stay in the European Union," said Dennis de Jong, managing director at UFX.com.
Traders said UK markets were facing a pivotal week ahead of two-day summit starting on Thursday at which Prime Minister David Cameron will try to clinch a deal to keep Britain in the European Union.
Some banks predict falls of up to 20 percent in sterling's value if Britons vote to leave the EU, although polls suggest that the most likely scenario is that Britain remains in the European Union.
Nevertheless, the cost of hedging against swings in sterling's value over the next week has jumped to its highest since Britain's general election last May, as investors brace for volatility stemming from the summit.
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