Pound Drops After U.K. Inflation Slows To 7-Month Low

The pound dropped against its major counterparts in the European session on Tuesday, after a data showed that U.K. inflation eased to a 7-month low in February.

Data from the Office for National Statistics showed that consumer price inflation slowed more-than-expected to 2.7 percent in February from 3 percent in January. This was the weakest since last July, when prices rose 2.6 percent. Economists had forecast an annual rate of 2.8 percent.

Core inflation, excluding energy, food, alcoholic beverages and tobacco, eased to 2.4 percent from 2.7 percent in the previous month. Core prices were expected to gain 2.5 percent.

On a monthly basis, overall consumer prices climbed 0.4 percent but slightly slower than the expected 0.5 percent.

Another report from ONS showed that output price inflation came in at 2.6 percent in February versus 2.8 percent a month ago. At the same time, output prices remained flat on month after rising 0.1 percent in January.

Economists had forecast output prices to rise 0.1 percent on month and 2.6 percent annually.

Input price inflation eased to 3.4 percent in February from 4.5 percent in January. On a monthly basis, input prices dropped 1.1 percent on month, in contrast to previous month's 0.4 percent increase.

The U.S. Federal Reserve's monetary policy announcement is due on Wednesday, with the central bank widely expected to raise interest rates by 25 basis points.

New Fed Chairman Jerome Powell's first press conference as head of the central bank is also likely to attract considerable attention.

Traders also await the Bank of England's interest rate decision on Thursday. The BoE is expected to keep interest rates and its asset-purchase program unchanged.

The currency traded mixed against its major rivals in the Asian session. While it held steady against the euro and the greenback, it rose against the yen and the franc.

The pound dropped to 1.4017 against the greenback, from a high of 1.4067 hit at 5:00 am ET. The next possible support for the pound is seen around the 1.39 level.

Having advanced to a 3-week high of 149.79 against the yen at 3:30 am ET, the pound reversed direction and retreated to 148.92. On the downside, 147.00 is seen as the next support level for the pound.

Data from the Cabinet Office showed that Japan's leading index declined less than initially estimated in January.

The leading index, which measures the future economic activity, dropped to a 6-month low of 105.6 in January from 106.8 in December. The reading was above the flash estimate of 104.8.

The pound pared gains to 1.3334 against the Swiss franc, from a high of 1.3380 hit at 4:30 am ET. The pound is seen finding support around the 1.30 level.

The pound reversed from an early high of 0.8772 against the euro, easing back to 0.8796. If the pound drops further, 0.89 is likely seen as its next support level.

Figures from Destatis showed that German producer price inflation eased to a 14-month low in February.

Producer prices climbed 1.8 percent year-on-year in February, slower than the 2.1 percent increase seen in January. This was the lowest rate since December 2016 and weaker than the expected 2 percent.

Looking ahead, at 8:30 am ET, Canada wholesale sales for January are scheduled for release.

Eurozone advanced consumer confidence index for March will be out at 11:00 am ET.