Sterling hits five-week low against resurgent euro

Sterling sank in morning trade on Tuesday as speculative investors slashed bets against the euro and traders sold hard into a bounce above $1.2950 that followed strong inflation numbers.

The pound hit an almost one-week high against the dollar immediately after the data showed inflation rose more than expected, to 2.7 percent, in April, adding to headaches for Bank of England policymakers who have so far looked through this year's pick-up in price pressures bounce and kept interest rates steady.

Traders said its more than half-cent fall thereafter reflected a conviction in the market that sterling will struggle to top $1.30 this year given the scale of concern over Brexit negotiations with the European Union.

Investors have also tended to read the rise in inflation as purely the consequence of the pound's falls since last June's referendum vote to leave the bloc, and more likely to weigh on consumer sentiment than spur a rise in official BoE rates.

While inflation has been strong, there have been intermittent signs in activity and other data that UK consumers, the drivers of a relatively robust economic performance in the past year, are beginning to feel more pain.

One assumption in last week's BoE's inflation report that investors questioned was that wage growth would take off more convincingly over the next two years - as it has consistently failed to do since 2008.