Sterling rose to a nine-week high against the dollar on Monday as the view grew that the Bank of England could raise interest rates this week. Most analysts polled by Reuters expect the BoE to wait until May or June before delivering another quarter-point rate hike.
But sterling firmed as money markets were becoming increasingly hawkish - pricing in a 40 percent chance of a rise on Thursday from the current 5.25 percent. Speculation over the prospect of higher UK borrowing costs increased with a report in the Sunday Times newspaper. Its "shadow" MPC committee - a selection of independent economists who say what they would do with policy each month - voted 8-1 in favour of a rate hike this month.
"The 8-1 vote in favour of the rate hike by the shadow MPC is a good indicator that there is a strong likelihood there will be a rate rise," BNP Paribas senior currency strategist Ian Stannard said.
Barclays Capital currency strategist Adarsh Sinha also said the BoE would probably raise rates this week. By 1514 GMT, sterling was up 0.6 percent on the day against the dollar at $1.9785, having hit a high of $1.9802 - last seen in late January. The euro fell 0.4 percent to 67.56 pence.