Sterling won more than three cents against the dollar on Tuesday and dug in its heels against the resurgent euro as UK inflation data helped to keep the fire burning under expectations of an imminent UK interest rate rise.
Euro zone-harmonised inflation remained at 1.3 percent year-on-year in December, beating forecasts of a small fall. Analysts had said a bigger fall could have cooled tightening expectations and hurt the pound.
Many in the market expect the BoE to tighten policy in February but some analysts say inflation could be the one factor that persuades Britain's central bankers to postpone tightening. The BoE's old measure of inflation rose in December.
Sterling's rise against the dollar was also driven by renewed selling of the US currency, which took it down sharply versus the euro.
"Helping sterling is the fact that not only did UK inflation hold, but it picked up. That should help sentiment firm behind the view that the BoE will raise rates at the February meeting," said Paul Robson, currency strategist at Bank One in London. "We are also seeing a corrective bounce in sterling."
At 1530 GMT sterling traded at $1.8158, up 1.8 percent on the day, on track to score its biggest one-day gain in percentage terms since September 2000. It was still below 11-year peaks set at $1.8577 last week but up from a two-week low of $1.7822 on Monday.
Against the euro, sterling was slightly up on the day at 69.13 pence, recouping losses made earlier in the session on the back of the euro's rise.
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