Extending early Tuesday's uptrend, the pound spiked higher against other major currencies after a report showed that UK's annual inflation unexpectedly accelerated in February. The British pound thus rose to a new multi-month high against the Japanese yen, 6-week high against the US dollar and new multi-day highs against the euro and the franc.

The Office for National Statistics said UK's annual inflation accelerated to 3.2% in February from 3% in January. Economists had expected consumer price inflation to slow to 2.6%. Month-on-month, consumer prices were up 0.9%, faster than a 0.3% rise expected by economists.

On a yearly basis, retail prices remained flat after rising 0.1% in January. Economists were looking for an annual fall of 0.7% in February. The retail price index, excluding mortgage interest payments climbed 2.5%, slightly faster than the 2.4% increase seen in January.

As the inflation remained more than one percentage point above the target, Bank of England Governor, Mervyn King wrote a further open letter to the Chancellor of the Exchequer. King expects sharp decline in CPI inflation since its peak in September to resume in the coming months.

The sterling continued to creep higher versus the yen and climbed to its highest point since December 01, 2008. The sterling-yen pair hit as high as 144.95 against the pound by 1:55 am ET, which may be compared to yesterday's closing value of 141.33. The next upside target for the Japanese currency is seen around the 147.18 level.

The yen fell against its major counterparts today hitting a fresh 5-month low against the euro as investors opted for higher-yielding assets following the U.S. government's plan to unlock toxic assets from banks' balance sheets in an effort to pull the economy out of recession.

Against its US counterpart, the UK currency climbed to a 6-week high of 1.4738 by about 2:30 am ET. Thereafter, the pound has lost some pips but rebounded shortly. The pair that was worth 1.4575 at yesterday's close is now trading at 1.4709. On the upside, the next likely target for the pair is seen at 1.498 level.

Market players will have a busy day in the New York session where Geithner and Federal Reserve Chairman Ben Bernanke will testify at the House Financial Services Committee on the government's rescue of American International Group Inc..

AIG has come under severe attack for awarding multimillion-dollar bonuses to executives following a $180 billion bailout from the U.S. government.

Markets will also receive information on the Richmond region manufacturing sector. The Richmond Fed manufacturing index is expected to remain unchanged at -51 in March.

The Federal Housing Finance Agency will also release its house price index for January. House prices are expected to fall 0.9% following a 0.1% increase in December.

In the afternoon, James Bullard, President of the Federal Reserve Bank of St. Louis, will speak in London.

At about 5:20 am ET, the pound rose to 0.9247 against the euro, compared to 0.9358 hit late Monday in New York. This set a 1-week high for the British pound. If the British currency rises further, 0.914 is seen as the next likely target level.

The Eurozone recorded a current account deficit of EUR12.7 billion in January, on a seasonal and working day adjusted basis, larger than a deficit of EUR7.6 billion in December, a report by the European Central Bank said today.

Governing Council member Erkki Liikanen said the European Central Bank still has room for adjusting interest rates. The policymaker, who heads the Bank of Finland, made the comment while presenting the latest economic forecasts for the Finnish economy.

It is worth emphasizing that the European Central Bank has not yet used up all its room for maneuver in its interest-rate policy, he said. The rate setter noted that this applied to all key policy rates.

Yesterday in an interview, the European Central Bank President Jean-Claude Trichet said that the bank remained wary of interest rates falling to zero.

The pound strengthened in early dealings versus the Swiss franc and rose to a 6-day high of 1.6546 by about 5:20 am ET. The next upside target level for the pair is seen at 1.675, if it ticks up further. The pound-franc pair closed yesterday's deals at 1.6399.

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