Investing.com - The pound rose to three-week highs against the dollar on Tuesday after data showing that the annual rate of inflation in the UK rose to the highest since September 2013 in February.
GBP/USD was up 0.8% to 1.2458 by 09.50 GMT, from around 1.2411 ahead of the release of the data.
Consumer prices jumped 2.3% on a year-over-year basis, up sharply from 1.8% in January, the Office for National Statistics said. Economists had expected a 2.1% increase.
Transport costs, which were pushed up by rising fuel costs, were the main drivers of inflation the ONS said.
Food prices rose in annual terms for the first time in more than two-and-a-half years.
Excluding food and fuel prices, core consumer price inflation rose to 2.0%, above economists' expectations of a 1.8% rise.
The steep drop in sterling since the June Brexit vote has pushed up the cost of imported goods and combined with a recovery in global oil prices has pushed inflation higher in recent months.
Economists fear that rising inflation at a time when wage growth is slowing will erode consumer spending, the main driver of growth in the UK economy.
The Bank of England has said it expects inflation will peak at 2.8% in the second quarter of next year but many economists say it is likely to hit 3%.
One BoE policymakers voted at last weeks meeting to raise interest rates, but weak wage growth and uncertainty over the economic outlook as Brexit negotiations get underway mean the central bank is likely to keep rates on hold.
The dollar remained on the back foot amid the view that the Federal Reserve won’t speed up the pace of monetary tightening.
Chicago Fed President Charles Evans said Monday the Fed is on track to raise rates twice more this year, disappointing some investors who had hoped for a faster rate of tightening.
Meanwhile, the euro fell to one-and-a-half week lows against the pound following the inflation report, with EUR/GBP down 0.37% to 0.8659.
The euro was at six-week highs against the softer dollar, with EUR/USD up 0.5% at 1.0792.
The single currency was boosted after opinion polls showed that Emmanuel Macron consolidated his status as frontrunner in France's presidential election in a televised debate against his main rival, far-right anti-EU leader Marine Le Pen.
Le Pen has pledged to take France out of the euro and hold a referendum on EU membership.