2018.07.1807:05:00UTC+00Pound Drops As U.K. Inflation Rises Less Than Forecast

The pound fell sharply against its major counterparts in the European session on Wednesday, after U.K. consumer inflation grew less than expected in June, reducing hopes for a rate hike from the Bank of England next month.

Data from the Office for National Statistics showed that consumer prices climbed 2.4 percent year-over-year in June, the same rate of increase as in the previous two months. Meanwhile, the inflation was expected to accelerate to 2.6 percent.

On a monthly basis, consumer prices remained flat in June versus the expected increase of 0.2 percent.

Core inflation that excludes energy, food, alcoholic beverages and tobacco, eased to 1.9 percent in June from 2.1 percent in May.

Another report from the ONS showed that input price inflation quickened to 10.2 percent in June from 9.6 percent a month ago. Prices were expected to grow by 10.1 percent.

Meanwhile, monthly inflation eased notably to 0.2 percent from 3.3 percent in May. The expected increase was 0.4 percent.

Output price inflation edged up to 3.1 percent in June from 3.0 percent in the prior month. Month-on-month, output prices gained 0.1 percent from May, when it rose by 0.5 percent.

Meanwhile, European shares rose amid growth optimism after Federal Reserve Chairman Jerome Powell offered a positive outlook of the U.S. economy and reiterated the Fed's plan for gradual rate increases.

The currency held steady against its major rivals in the Asian session, with the exception of the greenback.

The pound declined to 0.8924 against the euro, its lowest since March 9. On the downside, 0.91 is likely seen as the next support for the pound.

Final data from Eurostat showed that euro area annual inflation accelerated in June, exceeding the European Central Bank's target of "below, but close to 2 percent".

The annual inflation rate rose to 2 percent from 1.9 percent in May, in line with the flash estimate.

The pound fell to a 10-1/2-month low of 1.3010 against the dollar and a weekly low of 147.09 against the yen, reversing from its early highs of 1.3117 and 148.24, respectively. Next key support for the pound is likely seen around 1.28 against the greenback and 145.00 against the yen.

The U.K. currency dropped to near a 3-week low of 1.3030 against the franc, after having advanced to 1.3139 at 3:00 am ET. The pound is seen finding support around the 1.29 region.

Looking ahead, U.S. housing starts and building permits for June are scheduled for release in the New York session.

At 10:00 am ET, Federal Reserve Chairman Jerome Powell will testify on the Semiannual Monetary Policy Report before the House Financial Services Committee in Washington DC.