Sterling rose to a two-week peak against the euro on Wednesday, boosted by speculation that the London Stock Exchange may be a take-over target and by corporate flows ahead of a four-day Easter weekend.
Against the dollar, sterling retreated from a one-week high earlier in the session after data showed the US trade deficit narrowed more than expected in February.
The Nasdaq Stock Market said late on Tuesday it bought a near 15 percent stake in the London Stock Exchange to become its biggest shareholder, sparking speculation that a full take-over could be just round the corner.
British companies have attracted a lot of merger and acquisition activity in recent months, and analysts say this has helped support sterling at a time when the interest rate outlook is more attractive for the euro or the dollar.
"Everyone is talking about Nasdaq and the LSE - if they go for a take-over, they are going to have to buy more sterling," said a trader at an Australian bank in London.
By 1350 GMT, the euro was down 0.4 percent versus sterling at 69.12 pence per euro, just off an earlier trough of 69.06, which was the weakest euro/sterling level since March 29.
Against the dollar, sterling was up around 0.1 percent on the day at $1.7509, having retreated from an earlier one-week high of $1.7573 after the US trade data.
The US trade deficit narrowed to $65.7 billion in February from a record $68.6 billion the previous month. The consensus forecast was for a fall to $67.5 billion.
The news sent the dollar higher against the euro, and also against other major currencies including sterling.
"The euro has fallen back against the dollar a little bit, and that may be reflected to some extent in sterling ... US trade numbers came in better than expected," said Geraldine Concagh, economist at AIB Group Treasury.
Sterling largely shrugged off a mixed employment report which showed that the number of Britons out of work claiming benefits jumped by almost double expectations in March, but average earnings grew by more than expected in the three months to February.