The pound firmed against its major counterparts in the European session on Wednesday, as the nation's consumer price inflation improved in December, driven by rising transport costs and clothing and recreation prices.

Data from the Office for National Statistics showed that inflation accelerated to 0.6 percent from 0.3 percent in November. The rate was above economists' forecast of 0.5 percent.

Month-on-month, consumer prices advanced 0.3 percent, reversing a 0.1 percent drop in November and faster than the expected rate of 0.2 percent.

Excluding energy, food, alcoholic beverages and tobacco, core inflation increased to 1.4 percent from 1.1 percent in November. Core inflation was seen at 1.3 percent.

Further underpinning the currency was a weaker dollar following Janet Yellen's backing of aggressive stimulus measures to boost the economy.

Yellen urged Congress to "act big" on COVID- 19 relief, arguing that the benefits of higher spending outweighed the implications of a higher debt burden during her confirmation hearing before the Senate Finance Committee on Tuesday.

In economic news, separate report from the ONS showed that U.K. output prices dropped for the tenth consecutive month in December. However, the pace of decrease was the slowest since March 2020.

Output prices fell 0.4 percent annually, following a 0.6 percent drop logged a month ago. On a monthly basis, output price inflation held steady at 0.3 percent.

Economists had forecast output prices to fall 0.6 percent on year but to rise 0.2 percent on month in December.

At the same time, input price inflation turned positive for the first time since August 2019. Input prices rose 0.2 percent from last year, reversing a 0.3 percent fall in November. But the rate was below economists' forecast of +1 percent.

On month, input prices moved up 0.8 percent, faster than the 0.4 percent increase in November and the expected 0.7 percent.

The pound jumped to 0.8847 against the euro, its highest level since May 2020. Next key resistance for the pound is likely seen around the 0.86 level.

Data from Destatis showed that Germany's producer prices rose for the first time in eleven months in December, defying expectations for further decline.

The producer price index rose 0.2 percent year-on-year in December, after a 0.5 percent decrease in November. Economists had forecast a 0.3 percent fall.

The pound appreciated to a 6-day high of 1.3700 against the greenback from yesterday's close of 1.3622. The pound is likely to face resistance around the 1.41 region, if it rallies again.

The U.K. currency was higher against the yen, at a 6-day high of 142.23. At yesterday's trading close, the pair was worth 141.57. The pound is poised to challenge resistance around the 145.00 mark.

The pound touched its highest level since November 11 versus the franc, at 1.2197. The pair had ended Tuesday's trading at 1.2107. On the upside, the next resistance is seen near the 1.24 level.

Looking ahead, Canada CPI for December and U.S. NAHB housing market index for January are due out in the New York session.

At 10:00 am ET, the Bank of Canada announces decision on interest rates. Economists forecast the benchmark rate to hold at 0.25 percent.