Sterling hit a two week high versus the dollar on Friday, with the greenback pressured by a slightly more robust approach to risk after a savage US jobs report raised hopes for a major economic stimulus package.
The pound, which is on track to register two straight weeks of gains for the first time since late November, was also cheered domestically by the growing view that UK borrowing costs are near a trough after interest rates were cut this week by 50 basis points to a record low 1 percent.
The dollar, a major beneficiary of fears over a rapidly worsening global economic backdrop, turned lower against the pound and euro after the US Labour Department said employers slashed 598,000 jobs in January, the deepest cut in payrolls in 34 years.
Traders and analysts said the dismal figures may provide an incentive for US legislators to support the Obama administration's fiscal stimulus program and its bank rescue plan, which will be unveiled Monday.
"People seem prepared to adopt a more pro-risk attitude and that's why the pound is higher, euro/dollar is higher and Aussie and Kiwi dollars are up as well," said Lee Ferridge, senior FX strategist at State Street Global Markets in London.
By 1615 GMT, the euro was steady at 87.35 pence, having earlier dropped to its weakest since early December at 86.64 pence. Against the dollar the pound was up 0.8 percent on the day at $1.4735, not far from an earlier two-week high of $1.4767.
Strong gains against the currencies of its major trading partners propelled the pound to a seven-week peak against a basket of currencies of 79.9. After trading in a highly volatile fashion this week, the pound has firmed as investors interpret the Bank of England's hefty rate cuts of recent months as proactive. Figures revealing the biggest annual fall in UK industrial production since 1981 briefly dented the pound's progress in a reminder of Britain's extreme economic vulnerability.
Industrial output tumbled by 9.4 percent year-on-year in December. In the fourth quarter, production fell 4.5 percent, sparking fears of possible downward revisions to gross domestic product data for that period. "The numbers are horrendously weak ... it certainly looks like it's right on the borderline of what is necessary to pull GDP down," J.P. Morgan Chase economist Malcolm Barr said.