The pound extended losses against the dollar on Tuesday, falling to fresh four-and-a-half month lows as data on housing and inflation bolstered the outlook for the U.S. economic recovery.

GBP/USD dropped 0.67% to 1.6614, the lowest level since April 8.

The pair was likely to find support at around the 1.66 level and resistance at about 1.6680.

The dollar rallied after data showed that U.S. housing starts jumped 15% in July to an annual rate of 1.093 million, up from 945,000 in June, indicating underlying strength in the housing market.

In addition, the number of new permits granted to home-builders accelerated to an annual rate of 1.052 million, from 973,000 in June.

The upbeat housing day offset another report showing that the annual rate of inflation in the U.S. ticked down to 2.0% from 2.1% in June, while consumer prices rose 0.1% last month. It was the slowest increase in five months.

The pound weakened broadly earlier Tuesday after official data showed that the annual rate of inflation in the U.K. slowed sharply in July, curbing expectations for an interest rate increase.

The annual rate of inflation slowed to a two month low of 1.6% in July from 1.9% in June. Economists had expected inflation to tick down to 1.8%. U.K. consumer prices fell by a larger than expected 0.3% in July.

The weak data was seen as diminishing the likelihood that the Bank of England will raise rates this year after it halved its forecast for pay growth in 2014 last week.

Sterling was also lower against the euro, with EUR/GBP up 0.31% to 0.8013, off session highs of 0.8028.

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