Sterling strengthened against the euro and dollar on Monday, trading above $2.06 for the first time in three months and to within half a cent of a fresh 26-year high as traders bet British interest rates won't fall as fast as US ones.
The pound briefly eased back off these highs, however, as the dollar staged a profit-taking rebound in early New York trade ahead of the Federal Reserve's two-day policy meeting which gets under way on Tuesday.
The pound had surged earlier on the back of broad dollar weakness - it hit historic lows across the board on Monday - and traders' interpretation of a Financial Times story that recent British earnings figures may have been understated. Analysts also said that British mortgage and consumer lending data on Monday were slightly stronger than expected, which helped cool bets on Bank of England rate cuts in the coming months.
At 1515 GMT sterling was up 0.4 percent on the day at $2.0605. Earlier on Monday, it peaked at $2.0627, the highest in three months. The euro was down 0.3 percent at 69.90 pence. Data on Monday showed that total net lending in Britain last month rose to its highest since October 2006, with consumer credit rising to levels not seen since January last year.
Mortgage lending also rose, although approvals fell to their lowest in over two years. Financial markets expect the Bank of England to hold off cutting rates this year, and deliver a 25 basis point cut in January.
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