Sterling rose on hawkish comments from a Bank of England (BoE) member, while the euro regained its footing after a euro zone central banker qualified his dovish comments from yesterday. BoE deputy governor John Gieve warned of a "sharp rise" in inflation in the UK over the coming months, complicating the job of rate-setters at a time when the credit crunch has diminished growth prospects. He said the big rise in recent months of world oil and food prices, amplified by the sharp fall in the pound, is coming through in food, petrol, gas and electricity prices. "These are likely to raise our inflation rate well above target in the coming months at a time when short-term inflation expectations remain uncomfortably high," he said. The Monetary Policy Committee (MPC) is widely tipped to cut its benchmark Bank rate another quarter point in February to 5.25 pct. Elsewhere, the euro regained its footing after European Central Bank (ECB) member Yves Mersch sought to play down some of his dovish comments yesterday. Yesterday, Mersch suggested the ECB could "look through" temporary high levels of inflation and spoke of downside risks to economic activity, causing a euro rout -- but he later qualified his comments, noting the ECB did not consider a cut at its last meeting. "In the short term, high inflation will keep the Bank to its hawkish bias," said Geoffrey Yu at UBS. All eyes will be on ECB president Jean-Claude Trichet's speech today and whether he goes further in undoing the market's interpretation of Mersch's comments. The dollar, meanwhile, weakened sharply against the yen but was little changed against the euro, after more dreadful news from the property market, where housing starts fell 24.8 pct in 2007 -- the sharpest calendar-year decline since 1980. "The dollar might be losing out again to the yen but versus the euro the US unit is attempting to shrug off the data disappointment," said IFR Markets' Peter Stoneham. However, Yu at UBS predicted the euro, not the dollar, could be the chief loser from any insight gained into Fed thinking. "Based on yesterday's price action, the euro is much more exposed (than the dollar) fto a re-assessment of interest rate expectations," he said.