Sterling rose one percent against the dollar and also hit a one-year high versus the euro on Tuesday as investors shifted their funds back to the pound with prospects of higher interest rates in Britain.
After falling broadly on data showing a sharp fall in Britain's manufacturing on Monday, sterling regained poise as it also tracked the euro higher against a broadly weaker dollar.
The Bank of England starts its two-day meeting from Wednesday. The meeting is a close call, with 24 of 44 economists polled by Reuters expecting the bank to keep rates on hold when it announces its rate decision on Thursday.
"Sterling has been the currency of choice. The Bank of England is the only hawkish G10 central bank. People think if (a rate hike) is not this week then one in May is a done deal," said Jane Foley, currency strategist at Barclays Capital.
By 1345 GMT sterling had risen to $1.8388 from $1.8200 in late New York on Monday.
Against the euro it hit 65.77 pence per euro, its highest level since February 6, 2003.
Sterling's trade-weighted index, which has a euro weighting of 64.82 percent, a dollar weighting of 16.49 percent and a yen one of 7.0 percent, rose to its highest level since early March.