The pound snapped a five-day winning streak on Tuesday (19 July 2016), even though a report showed inflation in the UK increased more than expected last month. Data released by the Office for National Statistics showed inflation rose from 0.3% in May to 0.5% in June, beating forecast for a 0.4% reading.
"June's rise should be the start of an upward trend in UK inflation in the wake of sterling's referendum-related slide," said Capital Economics UK economist Ruth Miller.
"Give it a year and above-target inflation should be back on the cards again."
The sterling fell 0.90% against the dollar and 0.41% against the euro, exchanging hands at $1.3135 and €1.1917 respectively. Last week, the UK currency reached a two-week high of $1.3481 after plunging to a 31-year low of $1.2798 on 6 July but, even after the recovery, it remains the worst-performing G10 currency in the past month.
"Today's slightly higher than expected inflation reading did little to boost the pound's attractions," explained Chris Saint, senior analyst at Hargreaves Lansdown currency service.
"Whilst a weaker pound is expected to push prices higher in the coming months, inflation remains some way below the Bank of England's 2% objective and the central bank seems intent on mitigating post-Brexit growth risks rather than any temporary uplift in inflation."
Elsewhere, the euro slid by 0.51% against the dollar, with the latter extending gains against the Japanese yen after gaining 0.33% to ¥106.51. Naeem Aslam, chief market analyst at Think Markets UK attributed the yen's decline to the markets' decision to pin their hopes on more fiscal stimulus from the Bank of Japan.
"The Japanese yen is losing steam on the back of the hopes that the BoJ will soon trigger another round of quantitative easing," he added.