- The pound trimmed gains on Tuesday after data showing that inflation in the UK fell to its lowest level since July last month, easing a squeeze on household spending.

GBP/USD was trading at 1.4029 by 06:14 AM ET (10:14AM GMT) down from around 1.4054 ahead of the data.

The Office for National Statistics reported that the consumer price index fell to 2.7%on a year over year basis in February, from 3.0% in January.

Economists had expected a more modest decline to 2.8%.

The data added to indications that UK inflation is falling back from its November peak, when consumer prices jumped by 3.1%, as the impact of the drop in the pound after last years Brexit vote faded.

The weaker than expected inflation figure could undermine the case for the Bank of England to raise interest rates in the coming months.

The BoE is expected to keep rates on hold at its upcoming meeting on Thursday, but said last month that earlier and larger interest rates increases are likely in the coming months as the economy accelerates.

Sterling was higher against the euro, with EUR/GBP down 0.25% to 0.8775.

The euro came under pressure after data showing that German economic sentiment deteriorated sharply in March.

The ZEW Indicator of Economic Sentiment for Germany fell by 12.7 points to a reading of 5.1 amid concerns over the prospect of a U.S. - led trade conflict.