Sterling hit a new life-time low versus the euro on Tuesday before reversing direction as investors turned cautious ahead of key consumer inflation data due later in the morning.

Due at 0930 GMT, the report is expected to show consumer inflation rose 2.1 percent in December, just above the Bank of England's inflation target of 2 percent.

"It wouldn't be a huge surprise if we saw an uptick from the 2.1 percent," said David Pais, currency strategist at Citigroup in London.

"What is also crucial is the GDP data due on the 23rd of this month. If you get both these numbers quite strong, it could increase the reluctance of the MPC to cut rates and that should provide some support for sterling."

However he said any recovery would likely be short-lived due to overwhelmingly bearish sentiment on the UK economy.

Underscoring worries about the UK economy, Tesco, Britain's biggest retailer, missed sales forecasts for the six weeks to Jan. 5 and called for the BoE to cut rates to help shore up confidence of a "more cautious" British consumer.

By 0826 GMT, the euro was trading at 75.86 pence, off a earlier peak of 76.13 pence, the highest since its inception in 1999.

Against the yen, it slid to a low of 209.91 yen -- a level last seen in July 2006 -- before clawing back some ground to 210.23 yen. The pound was steady against the dollar at $1.9571, not far off a 10-month low set last week.

Concerns that weak bank earnings will push the U.S. economy closer to recession and raise the prospects of more aggressive interest rate cuts by the Federal Reserve were keeping the dollar under pressure.

Sourced by Reuters.