Sterling retreated on Thursday following the release of weaker-than-expected inflation data, prompting adjustments in market expectations regarding future interest rate hikes.

The pound fell against both the dollar and the euro after the report indicated that the Consumer Price Index (CPI) rose by 2.8% in May, down from 3.0% in April. This figure was below economists’ forecasts of 2.9%.

Analysts suggest the data reduces the likelihood of an imminent interest rate increase by the Bank of England. Market participants are now reassessing their positions in light of the new information.

Against the dollar, sterling fell to a low of $1.2662, while against the euro, it weakened to €1.1674.

The inflation figures are closely watched by the Monetary Policy Committee (MPC) of the Bank of England, which uses them to guide its decisions on monetary policy. The latest report suggests that inflationary pressures may be easing, potentially giving the MPC more flexibility in its approach to interest rates.