Sterling rose to its highest since early February against the dollar on Tuesday, as the US currency came under renewed pressure after tame US inflation data.
The dollar fell broadly after news that US wholesale inflation was less than expected last month, reducing expectations for the number of further increases in US interest rates.
The US currency's bearish bias was seen remaining before minutes from the Federal Reserve's latest interest rate-setting meeting at 1800 GMT, in which analysts believe expectations of further rate rises beyond May will be trimmed.
Analysts said sterling's advance was purely down to the dollar's losses, with no positive internal factors for now.
"It seems that the US interest rate debate is very much at the centre of the FX market. The dollar will also be nervous ahead of the Fed minutes later," CIBC World Markets European economist Audrey Childe-Freeman said.
By 1401 GMT, sterling was up 0.4 percent against the dollar at $1.7779, after hitting a two and a half month peak of $1.7789. Against the euro, sterling was up 0.14 percent at 69.12 pence.
UK financial markets reopened on Tuesday after a long Easter weekend. Data released earlier on Tuesday showed that British house prices rose in the three months to March but at a slightly slower pace than the previous three-month period.