Pound Rises As U.K. Consumer Price Inflation Hits 2-1/2-year High

The British pound strengthened against the other major currencies in the early European session on Tuesday, after data showed that U.K. inflation reached its highest level since July 2014 .

Data from the Office for National Statistics showed that U.K. consumer price inflation increased more-than-expected to 1.6 percent in December from 1.2 percent in November. This was the highest rate since July 2014 and above the expected rate of 1.4 percent.

Month-on-month, consumer prices advanced 0.5 percent versus 0.2 percent in the prior month. Prices were forecast to grow 0.3 percent.

The ONS data showed that output price inflation accelerated to 2.7 percent in December from 2.4 percent in November but slower than the forecast of 2.9 percent. Month-on-month, output prices edged up 0.1 percent each in December and November. Economists had forecast a 0.4 percent rise.

Input prices again logged a double-digit growth in December, by 15.8 percent after rising 13.3 percent in November. Economists forecast 15.5 percent increase. On a monthly basis, input prices gained 1.8 percent, reversing a 0.6 percent drop in November. Prices were expected to climb 2.4 percent.

Traders await the UK Prime Minister Theresa May's speech for details about the United Kingdom's exit from the European Union.

In the Asian trading today, the pound held steady against its major rivals.

In the European trading, the pound rose to 4-day highs of 0.8759 against the euro and 1.2189 against the U.S. dollar, from early lows of 0.8817 and 1.2018, respectively. If the pound extends its uptrend, it is likely to find resistance around 0.86 against the euro and 1.25 against the greenback.

Against the Swiss franc and the yen, the pound edged up to 1.2240 and 137.83 from early lows of 1.2148 and 137.06, respectively. The pound may test resistance near 1.26 against the franc and 145.00 against the yen.

Looking ahead, European Central Bank Governing Council Member Ewald Nowotny takes part in a panel discussion on "euro reforms in turbulent times", in Vienna at 6:00 am ET.

In the New York session, U.S. Empire State manufacturing index for January is slated for release.

At 8:45 am ET, Federal Reserve Bank of New York President William Dudley is expected to speak about consumer behavior at the National Retail Federation Convention and Expo, in New York.

At 10:00 am ET, Federal Reserve Board Governor Lael Brainard is expected to speak on monetary and fiscal policy before the Brookings Institution, in Washington, U.S.

Subsequently, Federal Reserve Bank of San Francisco President John Williams is expected to speak before the Sacramento Business Review Economic Forecast event, in Sacramento, U.S.

Later in the day, the UK Prime Minister Theresa May is expected to speak about details of the United Kingdom's exit from the European Union, in London.