Sterling scored a three-month high against the dollar on Thursday in line with a broad pull back in the US currency, but showed little reaction to the Bank of England's anticipated decision to keep rates steady. Many analysts expect the BoE to raise rates in August, following four hikes already put in place since November as economic data continues to show strength in the British economy.
Prospects for further tightening are seen supportive for the pound, but gains may be capped by signs of possible cooling in Britain's sizzling housing market, which would limit room for future hikes.
"The rate decision was what people had expected and sterling is moving with the broad dollar pull back," said David Mann, currency strategist at Standard Chartered in London.
By 1440 GMT sterling had risen as high as $1.8582 before slipping back to unchanged on the day at $1.8560. It was down on the day versus the resurgent euro at 66.75 pence.
Short sterling interest rate futures rose slightly immediately after the rate decision. Futures markets are pricing in rate rises of over half a percentage point by year-end.
"The decision was very much what the market had expected and there was no reaction. The market's focus is now firmly fixed on the August meeting," said Ian Stannard, currency strategist at BNP Paribas in London.
UK interest rates are now at 4.5 percent, compared with two percent in the euro zone and 1.25 percent in the United States, giving the pound a hefty yield advantage.
A gradual approach to monetary tightening from the Federal Reserve, which it reiterated last week, is also seen supporting the pound.
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