Sterling rose against the dollar on Tuesday after disappointing US data, while it ticked down versus the euro, shrugging off UK inflation data and a survey showing a rebound in house price growth in England and Wales.
UK inflation rose back to its 2.0 percent target in April, as expected. The core consumer price index, which excludes energy, food, alcohol and tobacco, was steady on the year at 1.3 percent.
The Royal Institution of Chartered Surveyors said its house price balance rose for the sixth month in a row to +15 in the three months to April from a downwardly revised +12 in March.
The data added to a recent string of strong data that have raised expectations the next move in interest rates will be up from the current 4.5 percent but few analysts think the Bank of England will rush into tightening policy.
"There is no argument for the BoE to rush headlong into higher rates for a long time. Bank of England rate policy will be stuck in neutral, but with an implied tightening bias as long as the headline inflation rate stays close to 2.0 percent," said David Brown, chief European economist at Bear Stearns.
By 1405 GMT the pound was up 0.3 percent at $1.8850, recovering from the day's low of $1.8747.
The dollar weakened as softer-than-expected US housing numbers and a benign core inflation reading for April suggested the Federal Reserve can take a breather from its two-year tightening campaign.
Against the euro, sterling was slightly down at 68.15 pence, still near last week's 2-1/2 month high of 67.98.
On the trade-weighted index, sterling held unchanged from the previous day, close to a recent 10-month high.
UK labour market data and the minutes from the BoE's May meeting are due on Wednesday. BoE Governor Mervyn King is also expected to speak.
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