Sterling rose above $2 for the first time this year on Thursday, after the Bank of England left interest rates on hold at 5.25 percent, disappointing minority expectations for a cut. "There was a little chance of a cut priced into the curve so there was a bit of a reaction, but the decision was widely expected," said David Pais, currency strategist at Citi.
However the pound remained in sight of record lows against the euro struck before the BoE decision, and analysts said it was only a matter of time before slowing growth pushed the central bank into further monetary easing.
Record lows versus the euro are "a truer reflection of sterling's long term prospects than its recent appreciation against the dollar," said Trevor Williams, head of group economic research at Lloyds TSB Financial Markets.
Markets are still pricing in three UK rate cuts by year end. By 1506 GMT, sterling was up 0.7 percent at $2.0066, at levels not seen since late December. The euro was a little lower at 76.51 pence, off an earlier record high of 76.92 pence.