(Reuters) - Sterling rose slightly versus the euro and the dollar after data showed British inflation returned to the Bank of England's 2% target in May for the first time in nearly three years.
The drop in annual consumer price inflation from April's 2.3% reading was in line with economists' median expectation in a Reuters poll and marks a sharp decline from the 41-year high of 11.1% reached in October 2022.
The euro dropped 0.04% to 84.46 pence against the pound from 84.48 pence right before the data. Sterling was up 0.05% against the dollar at $1.2713, having traded at $1.2704 earlier.
Markets are pricing in an about 50% chance of a first rate cut by August and almost half a percentage point in monetary easing in 2024.
The BoE meets on Thursday to discuss interest-rate policy, but is not expected to make any changes.
(Reporting by Stefano Rebaudo, editing by Amanda Cooper)
