Sterling inched up to a two-week high on a trade-weighted basis on Thursday, drawing support from buoyant stock markets and a report on the UK housing market that was not quite as bleak as economists had feared.
European equities rose more than 2 percent and UK stocks were up 1.6 percent, continuing this week's recovery on hopes of a rescue package for trouble carmaker General Motors.
Bullish stocks, a barometer of investors' risk appetite, have tended to support sterling in recent weeks. Building society Nationwide said house prices fell 0.4 percent on the month in November but economists surveyed by Reuters had predicted a fall of 1.6 percent.
Trading activity was thin, however, as US markets closed for the Thanksgiving holiday. "Although the Nationwide house price data showed another sharp decline in November ... this is nowhere near as bad as feared," BNP Paribas strategists said in a client note.
They also added: "Sterling/dollar remains well supported as risky assets continue to rally." By 1550 GMT, sterling rose 0.1 percent to $1.5365 while the euro fell 0.25 percent to 83.81 pence. The trade-weighted sterling index was fixed at 83.4, the highest since November 12 and recovering from the 13-year low of 80.5 hit on November 14.
But some analysts reckon the pound's rise won't last because of the bleak data concerning the real economy. "Sterling is outperforming ... it is a case of the bad news already being priced in. We are seeing a phase of consolidation before the next move lower," said Audrey Childe-Freeman, currency strategist at Brown Brothers Harriman.
The Bank of England has embarked on aggressive rate cuts to stave off the worst ravages of the UK economic slowdown, slashing interest rates 150 basis points at its last meeting. Economists polled by Reuters expect the BoE to cut borrowing costs by at least 50 basis points at its next meeting in December, with some predicting a chop of as much as 100 basis points.
Meanwhile BoE arch-dove David Blanchflower was quoted as saying that policymakers should have started cutting interest rates much sooner to help to prevent an economic crisis in Britain. "That's why I warned that this was going to happen unless we acted-I wanted to prevent the crisis. I'm not saying everything would have been wonderful, but at least if we'd acted earlier we would be ahead of events and not reacting to them," Blanchflower told the Guardian in an interview.