Sterling jumped one percent against the dollar after weaker than expected US data on Friday and clawed back some ground from recent one-month lows against the euro.
Sterling made the bulk of the day's gains against the greenback on news that the US trade deficit widened to a bigger record gap than expected in June.
US July producer price inflation and the University of Michigan August sentiment survey were also lower than expected.
"It's dollar weakness," said Lee Ferridge, head of global currency strategy at Rabobank.
"The US trade number was shocking and we've had a series of weak US data."
Sterling rose as far as $1.8416, its highest since Tuesday and a gain of nearly three cents from two-week lows against the dollar set in Asian trade.
The pound was trading at $1.8380 at 1354 GMT.
It also gained a quarter percent against the euro to 67 pence, compared with one-month lows of 67.23 pence set in the previous session.
Sterling was at 105.2 on its closely-watched trade-weighted index, off earlier six-week lows of 104.80.
Dovish comments from the Bank of England in its quarterly inflation report this week prompted investors to reduce bets on aggressive rate rises and depressed sterling.
British interest rates currently stand at 4.75 percent after five quarter-point rises since November, the most recent hike coming last week.
Many analysts had expected UK rates to rise to 5.25 percent by the end of the year, but BoE forecasts this week showed just one more hike of 25 basis points could put inflation on track to hit its two percent target in two years.