LONDON: Sterling fell to a one-month trough against the euro on Tuesday after data showed British inflation dropped to zero last month, its lowest since records began, bolstering expectations that British interest rates will stay lower for longer.
Sterling fell 0.6 percent to 73.63 pence per euro, its lowest since Feb 23, while against the dollar it shed 0.3 percent to $1.4896, having traded at $1.4945 beforehand.
Analysts said the data might further push out expectations of when interest rates would rise.
Currently, investors are factoring in the chance of the first rate hike in mid-2016, having pushed it back from early 2016 last week.
"UK CPI falling dangerously close to deflation territory during February will no doubt strengthen the Bank of England's already tough views on weak price pressures," said Jameel Ahmad, chief markets analyst at FXTM.
"Interest rate expectations have already been widely pushed back anyway until next year. Those interested in when the BoE might raise interest rates will have to keep a close eye on how long it takes for CPI to bounce back into stronger positive territory."
BoE Chief Economist Andy Haldane said last week the bank should be ready to cut rates further if inflation looked likely to stay below its 2 percent target. The next policy move was as likely to be a cut in rates as a hike, he said.
Those comments echoed a cautious tone from the BoE's monetary policy committee in minutes from its latest meeting released last Wednesday, where members flagged the impact of a strengthening pound on inflation.
"UK inflation is far below the BoE's target and to make matters worse, inflation expectations are coming down too. A further decline in inflation could be negative for the pound," said Marshall Gittler, head of global FX strategy at IronFX Global.
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