Sterling recouped earlier losses against the dollar on Tuesday and gained ground versus the euro as high-yielding currencies such as the pound won a respite from recent selling.
The pound was briefly hurt early in the day by British inflation data, which disappointed some traders even though it came out in line with consensus, showing a small uptick in the annual headline figure.
"All the high yielders have had a reasonable bounce," said Steven Pearson, chief currency strategist at Halifax Bank of Scotland Treasury Services in London.
"We are seeing currency managers regaining appetite for risk amid some stabilisation in equities and a fall in oil price, and some are stepping in for bargains."
At 1435 GMT sterling traded 0.1 percent stronger from the previous day's close at $1.7703. Earlier in the day, it was trading as low as $1.7614.
The pound also gained 0.4 percent versus the euro at 67.60 pence, after coming very close to Monday's two-month low of 68.16 pence.
Oil prices eased on Tuesday from 21-year highs, but analysts said they were likely to remain above $41 a barrel.
The Bank of England, which has raised rates three times since November to 4.25 percent, said last week inflation was in danger of moving above its official 2.0 percent target in two years' time, even though current inflation is well below 2.0 percent.
April inflation released on Tuesday rose to 1.2 percent year-on-year, compared with 1.1 percent in March. But some investors expected a stronger rise.