Sterling set for 2 month highs.

Sterling has risen to an eight-week high against the US Dollar overnight, buoyed by improving UK consumer confidence and expectations that stubbornly high inflation may force a rate hike towards the middle of the year.

British consumer price inflation will be released at 9.30AM. It has reached a six-money high of 3.3% in November and is forecast to have remained at that uncomfortably high level in December, that that 1% point above the Bank of England’s target.

Sterling rose to it’s highest since late November, boosted by hedge fund and real-money demand. Technical analysts said the outlook was constructive after last week’s close above the 100 day moving average.

Sterling also moved higher against the euro overnight and looks set to see some improvement throughout the day as the €1.20 level will no-doubt be tested once more.

Yesterday’s meeting of euro finance ministers failed to give the single currency market any reassurance that there would be an increase in the size of the European Financial Stability Fund (the euro zone’s bail-out fund) which kept the euro under some downward pressure versus the other majors.

It attempted to move higher versus the dollar overnight following a pick up in risk appetite in the back of gains in global equities but upside momentum appears to be short lived.

The US Dollar fell to an eight-week low against a basket of currencies on Tuesday as the euro extended gains on reported sovereign demand and following reports that Russia may be inline to follow China and Japan and opt to buy euro zone debt.

An interesting day in store with euro and dollar weakness, but with the pound set for further gains. Sellers of sterling are well placed to take advantage of some good prices, and we will have more on any significant changes in the market over the next few hours.