Sterling hit an 11-year high versus the dollar for the second day running on Tuesday and touched a three-month peak on the euro, powered by demand for its relatively lucrative yield.
Investors are also keen to buy pounds as a safer bet against the dollar as the euro's rise on the greenback could still encounter criticism from European officials.
At 1530 GMT sterling was trading at $1.8682 up 0.6 percent on the day but down from an 11-year high of $1.8734 set earlier in the day.
"Sterling will remain strong. We are looking for it to go back to $1.88," said Ryan Shea, senior international economist at Bank One in London.
"In an environment when the dollar continues to weaken after the G7 (Group of Seven meeting), sterling offers best overall premium."
The euro was down a third of a percent on the pound at 68.05 pence per euro.
The US currency fell broadly on Tuesday after markets decided that the G7's warning against excess volatility at a key meeting last week did not herald intervention to sell euros versus the dollar soon.