LONDON: Sterling fell to a four-week low against the euro on Tuesday, ahead of data that is likely to show inflation is slowing in the UK and which could prompt the Bank of England to delay the first interest rate hike until well into 2015.
Inflation data will be released at 0830 GMT and the consumer price index is seen falling further in September. Expectations are for an annual reading of 1.4 percent in August, compared with 1.5 percent in the previous month.
Retail prices are also set to fall to 2.3 percent.
That comes after the British Retail Consortium said total retail spending was 0.8 percent lower this September than a year ago, the steepest annual drop since April 2012 and a sharp contrast to August's robust growth of 2.7 percent.
Traders said the UK inflation along with wage growth data which is due on Wednesday would be crucial, with any disappointment likely to pour cold water on rate hike hopes and send the pound lower.
"The UK inflation rate is forecast to have slowed for a third consecutive month in September, which could scale back expectations for BoE tightening and encourage cable bears to take another run at the sub-$1.6000 territory," said Marshall Gittler, head of global FX strategy at IronFX Global. Sterling was down 0.3 percent against the dollar at $1.6040.
It was marginally higher against the euro, recovering from a four-week low hit earlier in the session.
The single currency rose to a four-week high of 79.35 pence in the Asian session, before easing to trade at 79.18 in London.
Sterling has been struggling lately as investors pared back expectations of a BoE rate increase by the end of the year. Expectations that the BoE will be the first major central bank to raise rates drove sterling to a six-year peak against the dollar in July.
But with UK wages showing little signs of rising, the housing market cooling and economic activity moderating, the prospect of an end-of-year slowdown in the UK has grown considerably.
BoE Governor Mark Carney displayed a slightly more dovish stance on Monday highlighting that the monetary policy committee will have to take in to account "a more modest global recovery, particularly if that's the case in Europe" and "a benign global inflationary environment."
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