EU session review: Sterling powered by jump in inflation

Data released
09:30     UK     HICP (December)    1.0%    0.7%    0.4%
09:30     UK     HICP (December) Y/Y    3.7%    3.4%    3.3%
09:30     UK     HICP ex EFAT (December) Y/Y    2.9%    2.7%    2.7%
09:30     UK     Retail prices (December)    0.7%    0.8%    0.4%
09:30     UK     Retail prices (December) Y/Y    4.8%    4.8%    4.7%
09:30     UK     RPI-X (December) Y/Y    4.7%    4.8%    4.7%
10:00     Germany     ZEW economic expectations index (January)    15.4    5.8    4.3

The biggest ever month-on-month rise in UK consumer inflation pushed sterling back above $1.60 against the dollar on Tuesday as investors brought forward their expectations of the next rise in interest rates.
Britain’s consumer price index was driven to an eight-month high of 3.7% in December, from 3.3% in November, data revealed on Tuesday. The month-on-month increase of 1% was the largest on record.
The annual number was ahead of the Bank of England’s forecast of 3.2% and was driven by rising oil and fuel costs and food bills. Last month the Bank left interest rates at the historic low of 0.5%.
“There is increased speculation on the markets about a first rate rise in the UK in mid-2011,” said Ulrich Leuchtmann at Commerzbank. He added, however, that the economic outlook remained too uncertain for the central bank to make any snap decision. “We still do not assume that the Bank will raise rates this year.”
Minutes from the last monetary policy committee meeting revealed there remained scant support for near-term rate increases, with only one member, Andrew Sentance, calling for rates to be lifted.
The euro edged higher against the dollar on Tuesday.
Euro zone finance ministers met on Monday but made no firm decision about possible additional crisis measures, turning market attention to the Ecofin meeting of European Union finance ministers due to be held later on Tuesday.

EUR/USD rose from $1.3250 to $1.3430 and set stable within the $1.3380/$1.3410 range.

GBP/USD rose from $1.5860 to $1.6060 before retreated to $1.6000.

USD/JPY remained within the Y82.30/60 range.

US data starts at 1330GMT with the NY Fed Empire State Survey, where the index is expected to rise to a reading of 14.0 in January after see-sawing in the previous two months. Annual revisions will be included with this month's data.
At 1400GMT, the Bank of Canada makes it's interest rate announcement and economists agree on unchanged rates.
Further US data includes the TIC data at 1400GMT, the weekly MNI Capital Goods Index at 1430GMT, the Housing Market Index from the NAHB at 1500GMT and the weekly MNI Retail Trade Index at 1530GMT. Late US data then sees the weekly ABC/Washington Post Consumer Confidence Index at 2200GMT.