The greenback advanced across the board on Tuesday, in part due the rise in risk aversion caused by strong U.S. inflation data which suggests the Federal Reserve could raise interest rates sooner than expected. The dollar gained against the euro, touching a 2-1/2-month high on concerns over eurozone banks.

The single currency was under pressure starting from European opening and despite the release of better-than-expected German ZEW index which came in at 50.4 versus the economists' forecast of 50.0, euro continued to fall on worries over the Greek government's failure to announce tougher measures to shore up the country's finances. Greek Prime Minister George Papandreou announced late on Monday spending cuts and a 90% tax on private bankers' bonuses in an effort to rein in Greece's debt and deficit. Also weighing on the euro was a report saying Austrian monetary authorities had put the country's No. 4 bank on a watchlist.

U.K. CPI, RPI and core RPI rose by 0.3% m/m and 1.9% y/y, 0.3% m/m and 0.3% y/y n 0.3% m/m and 2.7% y/y respectively. British house price came in at a seasonally adjusted 0.5% m/m rise n 2.2% y/y decrease in October. The British pound retreated from 1.6320 to a low of 1.6205 after the data but recovered strongly in NY morning.

The greenback has traded with a firm undertone throughout the Asian n European sessions but retreated from intra-day high at 89.95 in NY after the release of much weaker-than-expected U.S. Empire state manufacturing data which came in at 2.55 for December, well below the economists' forecast of 24.00 and the reading of 23.51 in November. In other news, U.S. PPI rose by 1.8% m/m and 2.4% y/y respectively, much higher than the expectation of 0.8% and 1.6%. The core PPI rose by 0.5% m/m and 1.2% y/y versus forecast of 0.2% m/m and 0.9% y/y.

The RBA released its meeting minutes on Tuesday and Aud fell after the report. Aud tumbled to as low as in NY before recovering on profit taking. The minutes from the central bank's last meeting were not as hawkish as expected, suggesting it may pause in its tightening cycle.

Data to be released on Wednesday include Australia GDP, Westpac leading economic index, Japan machine tools orders, German and eurozone service and manufacturing PMI, U.K. ILO unemployment rate, claimant count, eurozone, HICP final, U.S. housing starts, building permits, CPI, current account. The FOMC will announce their decision on interest rates at 19:15GMT.