RTTNews - In European deals on Tuesday, the pound soared to multi-day highs against its European and Japanese counterparts after a report showed that U.K.'s annual inflation unexpectedly stayed below the central bank's target of 2% for the second straight month in July. The pound also advanced against the currencies of U.S. and Switzerland.

The Office for National Statistics reported today that annual inflation stood at 1.8% in July, the same as in June. Economists had expected the inflation rate to slow to 1.5%. Month-on-month, consumer prices remained flat, while economists were expecting a 0.3% fall.

Core inflation that excludes energy, food, alcohol and tobacco was 1.8% in July.

Further, the ONS report showed that retail prices declined 1.4% in July from the prior year, which was slower than the expected fall of 1.7% and June's 1.6% drop.

The Bank of England Governor Mervyn King has warned that inflation is likely to fall below 1% in the next few months - with the economic recovery set to be slow and protracted - a signal that interest rates will not rise any time soon.

Inflation has declined steadily since hitting a peak of 5.2% last September as oil prices have fallen sharply from last summer's record highs and food prices have also weakened.

The BOE surprised markets earlier this month when it announced an unexpectedly large increase in its bond-buying program to GBP175 billion by early November, from the GBP125 billion it completed in July.

A rise in equity and oil prices also supported the pound. U.K. stocks opened higher today and at 6:11 am ET, the FTSE 100 .FTSE index was 40.67 points higher or 0.88% at 4,685.68.

The pound that closed yesterday's trading at 0.8615 against the euro rose to a 5-day high of 0.8582 in early deals on Tuesday. The next upside target level for the pound is seen at 0.849.

The pound weakened against the euro despite a monthly report from ZEW Center for European Economic Research showed that Germany's economic sentiment rose 16.6 points to 56.1 in August.

The index rose more than the expected reading of 45. The indicator also stood well above the historical average of 26.5 points. The assessment of the current economic situation stood at minus 77.2 in August, up 12.1 points. Economists were expecting the index to rise to minus 85.

In addition, the economic expectations for the euro zone moved up 15.4 points to 54.9 points. Meanwhile, current economic situation improved to minus 82.1 points.

The pound soared to a 5-week high of 0.8458 against the euro on August 06. But the pound plunged thereafter as the Bank of England surprised markets by expanding its quantitative easing program. The pound extended its downtrend in the subsequent days and lost 2% to hit an 18-day low of 0.8656 on August 14.

But the pound rebounded thereafter as the euro declined amid a report showed that the Euro-zone consumer prices declined at the fastest pace on record in July.

Since touching an 18-day low, the pound has gained 1% against the euro thus far.

In early deals on Tuesday, the pound surged up to a 4-day high of 156.89 against the yen. This may be compared to yesterday's close of 154.59. On the upside, 160.4 is seen as the next target level for the U.K. currency.

Thus far, the pound-yen pair has appreciated more than 2% after it reached a new multi-week low of 153.50 yesterday.

The Cabinet Office of Japan in a final report revised upward the leading and coincident indices for June. The leading index stood at 79.9 in June, revised up from 79.8 estimated on August 6, and was also higher than the reading of 76.9 in May. The index came in line with economists' estimates. The index has now increased for the fourth consecutive month in June.

Meanwhile, the coincident index was revised up to 88 from 87.8 estimated previously, and came in higher than the 87.1 in May. Economists expected the reading to be 87.9. The coincident index increased for the third consecutive month in June.

The pound edged higher against the dollar in early deals on Tuesday. At 5:00 am ET, the pound-dollar pair hit 1.6471, up 1.2% from yesterday's 1-month low of 1.6278. If the pair climbs further, it may find near term resistance around the 1.661 level. The pair closed yesterday's New York session at 1.6351.

The yen and the dollar declined today as an advance in most Asian and European stocks prompted investors toward riskier assets.

In Asia, Japan's Nikkei 225 index gained 0.16%, South Korea's KOSPI rose 0.21%, China's Shangai composite index climbed 1.4% and Hong Kong's Hang Seng closed 0.84% higher.

But the stock markets in Australia, New Zealand, Taiwan, Indonesia and Malaysia were closed lower today.

The pound advanced against the Swiss franc after hitting a new multi-week low of 1.7595 in early Asian deals on Tuesday. The pound-franc pair is currently trading at 1.7739 with 1.788 seen as the near term resistance level. The pair closed yesterday's deals at 1.7631.

Investors now look forward to the North American session, in which the U.S. PPI and the housing starts report-both for the month of July have been slated for release.

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