Sterling hit a near 15-year peak versus the yen and edged back up closer to the $2 mark on Tuesday, drawing support from a view that UK interest rates are set to rise further. Investors expect UK rates to rise to 5.75 percent in coming months and as high as 6 percent by the end of the year, on top of the four hikes already made by the Bank of England since August.
The consensus is for BoE to keep rates on hold at 5.5 percent on Thursday, although a Reuters poll of economists this week gave a median 30 percent chance of a 25 basis point hike.
High and rising interest rates in the UK contrast with rates of just 0.5 percent in Japan, making the pound an attractive destination for the carry trade where investors borrow low-yielding currencies to invest in higher yielding assets. At 1404 GMT the pound was up 0.2 percent at 241.88 yen, having earlier hit 242.98 yen, its highest level since September 1992.
It hit a 4-week high against the dollar, at $1.9968, moving back towards the psychologically key $2 level. However, sterling's gains were trimmed after the dollar got a broad boost from a much stronger than expected survey of the US service sector from the Institute for Supply Management.