Sterling edges up versus broadly weaker dollar

Sterling edged higher against a broadly weaker dollar on Tuesday, tracking a relief rally in euro/dollar as investors trimmed short positions in the single European currency.

UK consumer price inflation for January came in as expected and had little impact.

Analysts had cited a slight upturn in risk appetite weighing on the greenback, though overall moves versus the pound were relatively contained before and after the data.

The moves we are seeing this morning are a reflection of risk appetite. There is some short-covering in euro/dollar which is dragging sterling higher, said BNYM currency strategist Neil Mellor.

At 1105 GMT, sterling was trading up 0.2 percent against the U.S. dollar at $1.5685. It had risen slightly as UK CPI for January came in as forecast at 3.5 percent, well above the government's 2.0 percent inflation target.

We are not especially fazed by the jump in inflation this month. There are clearly special factors involved and wage growth remains very restrained, said Investec chief economist Philip Shaw, explaining the lack of market reaction.

Bank of England Governor Mervyn King penned an open letter to Chancellor Alistair Darling, as he must any time CPI exceeds the government's target by more than one percentage point.

As had been widely forecast, King reiterated what he had said in last week's BoE inflation report -- that the surge in inflation would be temporary and price pressures would subside later in the year.

King said January's rise in inflation had been driven by the reversal of a cut in value-added tax, higher oil prices and pass-through from the weaker pound.

Versus the euro EURGBP=D4, the pound was also little changed at 87.00 pence. It remained close to recent lows of 86.58 hit after the single European currency came under heavy selling pressure on concerns over the indebtedness of Greece and other peripheral euro zone countries. We expect euro/sterling to continue to come under pressure as sterling continues its advance against one of the few currencies in worse shape than it is, said Michel Hewson of CMC Markets in a note.

A big week of UK data releases continues with Wednesday's minutes from the BoE's policy meeting earlier this month, when the central bank said it would not increase its asset-buying programme in February.

Last week, King had said it was far too soon to say quantitative easing was finished.

Employment figures are also due Wednesday, followed by public sector finance data Thursday and retail sales on Friday.