Sterling hit a one-month high versus the euro and a 2-1/2 month peak against the dollar on Tuesday, supported by growing expectations that the Bank of England could raise interest rates as soon as this week.
Data on Tuesday provided more indications of a robust economy and housing market, which should be able to weather another rate hike from the current 5.25 percent.
"The uncertainty is enough that sterling will remain supported for now ... A lot of people were caught short the pound and they have been buying it ever since," said Adam Myers, currency strategist at UBS. "We think that the BoE is going to remain on hold for the rest of the year so we are a bit opposed to the market at the moment," he added.
The median forecast from economists polled by Reuters last week gave a 25 percent likelihood of an April hike. Sterling hit a 2-1/2 month high versus the dollar for a second session, at $1.9822, before retreating to stand at $1.9775 by 1430 GMT, steady on the day. The euro was buying 67.62 pence, near an earlier one-month low of 67.46.
Sterling hit a 5-week high at 234.86 yen and also on a trade-weighted basis at 104.5. Data from RICS on Tuesday showed that growth in Britain's construction sector accelerated to its fastest pace in nearly three years in the first quarter. The CIPS construction PMI for March also pointed to faster growth in the sector.
Profitability of UK firms outside the financial sector, meanwhile, rose to a record high in the final quarter of 2006, according to official data. Wednesday sees the release of the UK services PMI and the BRC shop price index, both for March.
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