Currency markets digested a barrage of economic data on Tuesday with surprises coming from both sides of the Atlantic.

The Sterling was sharply lower following an unexpected decline in UK CPI. While the economic reports from Europe disappointed, the data from the US was a marked improvement from previous readings, rising to multi-year highs.

Retail sales in the US surged in January, climbing to its highest level in 2-years to 2.3%, up sharply from a downwardly revised December reading of 0.4%.

The initial December report showed retail sales up 0.7%.

Meanwhile, the ex-autos figure blew away forecasts, jumping to its highest level since 1999, up 2.2%, posting a dramatic increase from December’s 0.2% reading.

Separately, December business inventories edged up slightly to 0.7%, compared to an upwardly revised November reading of 0.6%. The December business sales increased to 1.2%, versus 0.3% in the prior month.

Tomorrow will also see several key reports from the US, including the February Empire manufacturing survey, December net international capital flows (TICS) and January capacity utilization.

Economists are looking for the TICS data to fall to $75.0 bln, versus $89.1 bln from November. Also worth noting will be Fed Chairman Bernanke’s first Congressional testimony before the Senate tomorrow at 10:00 AM.