Sterling hit a five-year peak against a broadly weaker yen on Monday and traded near an 11-month peak against a basket of currencies, helped by robust economic data and favourable rate differentials. Mortgage approvals in Britain were 33 percent higher on the year in October, seasonally adjusted numbers from the British Bankers' Association showed.
Sterling rose to 165.27 yen, its highest since October 2008 with the low-yielding yen also hurt by firmer stock markets, themselves buoyed by a deal between Iran and six world powers to curb Tehran's nuclear programme.
That helped the pound stay near a 11-month high against a trade-weighted basis at 83.9. Sterling was also steady against the euro at 83.50 pence, not far from a three-week low of 83 pence struck last week.
The euro was pegged back by expectations that the European Central Bank may have to loosen policy to ward off risks of deflation in the economy. Various ECB members have said the options on rate cuts are not fully exhausted.
"We're happy to be short euro/sterling and long sterling/yen which has now clearly broken free, targeting 168.23 yen, then 184, as it recovers some of the 2007-2011 move (from 251 to 117 yen)," said Kit Juckes, currency strategist at Societe Generale.
The spread between 10-year British and German Bund yields remained near an eight-year high of 109.4, with investors pricing in greater chances of monetary tightening by the Bank of England.
British government bond prices rose broadly in line with German bonds, with 10-year yields dropping 2 basis points on the day to 2.77 percent, close to a five-day low of 2.766 percent set earlier in the day.
This week investors will get the revised second-quarter GDP data on Wednesday while Bank of England Governor Mark Carney will answer questions about monetary policy and the economic outlook from lawmakers on Tuesday.
Despite gains against most currencies, the pound underperformed the broadly higher dollar. Sterling was down 0.35 percent at $1.6165.
"Any further sterling appreciation from the current levels may dampen inflation expectations and investors' BoE rate expectations. Accordingly we see limited scope for the currency to appreciate much further from the current levels, in particular versus the dollar," Credit Agricole said in a note.