Sterling hit late October highs against a weakening dollar on Thursday as investors expect a February rate hike from the Bank of England to back the pound and saw limited political risks linked to Prime Minister Boris Johnson's party scandal.
The dollar lost ground against most rival currencies after data showed US inflation was no hotter than expected in December which prompted traders to cut crowded long positions.
In London morning trading, the pound reached a high of $1.3747, a level unseen since October 29 2021.
Sterling steadies near 23-month high versus euro
Against the euro , the British currency stood flat at 83.49 pence but in striking distance of the February 2020 highs it touched versus the single currency on Tuesday.
Calls for Johnson to resign after he admitted attending a "bring your own booze" gathering at his official residence during Britain's first coronavirus lockdown had little adverse impact on the currency.
"With the UK ahead of other major developed economies in regard to the Omicron wave and the roll-out of booster jabs, GBP will likely see limited impact from the uncertainty over PM Johnson's future", wrote MUFG Derek Halpenny in a note where he said he received clients enquiries on the matter.
"With the BoE on course to hike in February, positioning is likely to shift to longs and it will be the BoE that dominates GBP direction for now", he added.
Markets are pricing in an almost 100% chance of a least a 15 basis points rate hike in February.
Leaders of all the main opposition parties called for Boris Johnson to resign, while the Conservatives' leader in Scotland became the first figure in his party to say Johnson should now quit.
Bookmakers have slashed their odds on Johnson being replaced as prime minister this year, with local elections in May viewed as another moment of jeopardy.
"The chances of UK PM Johnson resigning are rising, but the pound appears immune to political noise and might not suffer from a change of leadership in the country", ING also concluded in a note.
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