Sterling climbed to a two-and-a-half month high against the dollar on Wednesday, supported by a surprise return to growth in the UK manufacturing sector, although it lagged the euro as the data did little to alter expectations of more monetary stimulus.
Most recent UK data, including GDP numbers, has shown the economy is on the brink of recession, raising expectations the Bank of England will step up its asset purchase programme next month to support the flagging economy.
January's manufacturing PMI eased some of those worries, but did little to change the market's forecast of more quantitative easing by the BoE next week.
That is likely to undermine the pound in the near term, especially against the dollar. Sterling was last up 0.6 percent at $1.5855 having hit a session high of $1.5884, its highest level since November 18.
The pound rallied in line with other perceived riskier currencies versus a broadly weak dollar, triggering reported stop loss orders through $1.5800, where traders cited an options barrier, and $1.5820.
It was lower against the euro, with the common currency trading 0.3 percent higher at 83.22 pence. Traders cited euro buying against sterling by a US bank, with solid bids at 82.65 likely to provide near term support. "The PMI data has given sterling a bit of support but it is only a piece of data in the whole range of bad data," said Peter Allwright, head fx trader at fund manager RWC Partners.
"One still cannot paint a rosy picture for the UK. But having said that, there is nothing to get excited about the euro either. We will look to sell euro/sterling at 85 pence."