Sterling trimmed recent gains on the euro and dollar on Wednesday as the market awaited an expected increase in British interest rates.
The Bank of England's Monetary Policy Committee will announce at 1200 GMT on Thursday whether it is raising interest rates by a quarter percentage point to 4.0 percent, as many in the market are predicting.
"I don't think a rate hike is in doubt. There is a little bit of speculation they could even do 50 basis points and if that view takes hold that could be a bit detrimental to sterling," said Kamal Sharma, currency strategist at Dresdner Kleinwort Wasserstein.
"But there's not really a case you can make for sterling moves without looking at what's going on with the dollar."
The pound slipped 0.4 percent to $1.8300 as the dollar got a lift from strong US services sector data.
The pound gained more than 1-1/2 US cents on Tuesday as the dollar came under selling pressure after the poison ricin was discovered in a US Senate office and traders sold dollars ahead of a Group of Seven meeting on Friday.
The market is doubtful the G7 meeting will produce any significant change in tone on the dollar's two-year decline, with the main currency blocs, the United States, Japan and the eurozone, not seen as having a uniform position.
Sterling hit a one-year high on its trade-weighted index at 103.7 on Wednesday and re-tested levels near Tuesday's three-month peak of 68.13 pence per euro before slipping to 68.40 by 1530 GMT.
The pound has benefited against the euro and dollar in recent weeks on expectations Britain would be ahead of other big economies in raising interest rates and analysts said as a result it may not have energy to appreciate much immediately after the rate decision.
A quarter point rise on Thursday would take British rates to 4.0 percent and be the second increase in three months, widening sterling's yield advantage over both the dollar and the euro.
The BOE raised rates in November partly because it was worried that house prices and consumer debt levels were increasing too fast.
On Wednesday data from the country's largest mortgage lender the Halifax showed house prices surged last month at their fastest pace since October 2002, jumping 2.0 percent.
A CIPS/Reuters survey of purchasing managers showed Britain's services sector grew at its fastest pace in 6-1/2 years on Wednesday, making higher rates look even more likely.
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