Pound Climbs After U.K. Inflation Hits 5-year High

The pound strengthened against its major counterparts in early European deals on Tuesday, as UK inflation increased in September to the highest since early 2012, raising hopes for a Bank of England rate hike in the coming months.

Data from the Office for National Statistics showed that inflation rose to 3 percent in September from 2.9 percent in August. The rate came in line with expectations. Inflation was last higher in March 2012.

Month-on-month, consumer prices gained 0.3 percent in September, as expected.

Core inflation that excludes energy, food, alcoholic beverages and tobacco, held steady at 2.7 percent.

Meanwhile, the output price inflation slowed slightly to 3.3 percent, as expected, from 3.4 percent in August.

On a monthly basis, output prices rose only 0.2 percent after climbing 0.4 percent.

At the same time, annual growth in input prices remained at 8.4 percent. Meanwhile, monthly input price inflation eased notably to 0.4 percent from 2.3 percent.

Governor Mark Carney is due to testify before Parliament's Treasury Select Committee shortly.

The currency has been trading in a positive territory in the Asian session, with the exception of the yen.

The pound climbed to 0.8858 against the euro, compared to 0.8901 hit late New York Monday. If the pound rises further, 0.87 is possibly seen as its next resistance level.

Final data from Eurostat showed that Eurozone inflation held steady in September, as initially estimated.

Inflation came in at 1.5 percent in September, the same rate as seen in August.

The pound that closed Monday's trading at 1.2923 against the Swiss franc edged up to 1.2980. The pound is seen finding resistance around the 1.305 region.

The pound spiked up to a 4-day high of 149.06 against the yen, from a low of 148.34 hit at 9:45 pm ET. Continuation of the pound's uptrend may see it challenging resistance around the 151.00 mark.

On the flip side, the pound retreated to 1.3245 against the greenback, following a rise to 1.3287 at 4:15 am ET. Further weakness may take the pound to a support around the 1.31 level.

Looking ahead, U.S. import and export prices and industrial production for September, along with NAHB housing market index for October are due in the New York session.