Sterling lower despite strong inflation report; Greek concerns, expectations of Fed rate hike continue to weigh

The pound dropped on Tuesday despite data showing that the U.K. exited deflation last month. Investors were concerned over Greece uncertainties and the upcoming Federal Reserve policy statement.

The Office for National Statistics said the annual rate of consumer inflation ticked up 0.1% in May, in line with forecasts, following a 0.1% decline in April.

Consumer prices were higher 0.2% from a month earlier, also matching forecasts.

Underlying inflation, which strips out food and fuel costs rose 0.9% last month, slightly below forecasts for an increase of 1.0%.

Transport, notably air fares gave the biggest contribution to the rise, according to the ONS.

Rises in food and petrol prices also helped inflation to turn positive, it said. In April, CPI inflation turned negative for the first time since 1960.

Despite the good news, the local currency was lower against the dollar with GBP/USD slipping 0.15% to trade at 1.5577.

Sterling was slightly lower against the euro, with EUR/GBP at 0.7230000.

Growing concerns over the prospect of a Greek default and 'Grexit' after talks on a cash-for-reforms deal broke down over the weekend supported the demand for the dollar.

Investors were looking ahead to the meeting of the Federal Reserve due tomorrow for fresh cues on the timing of the rate hike.