Sterling rose to six-week high against a trade-weighted basket of currencies on Friday, bolstered by expectations that British interest rates may rise faster than previously anticipated.
That view grew after the Federal Reserve earlier this week signalled it may raise rates in December. Investors have brought forward expectations of a first rate increase by the Bank of England to the third quarter of 2016, after pricing in a chance of a move in the fourth quarter at the start of the week.
The BoE is expected to become the second major central bank after the Fed to raise rates since the financial crisis. By contrast, the European Central Bank said last week it was prepared to loosen policy further in the euro zone, Britain's biggest trading partner.
The sterling index was at 92.8, its highest since September 21, and on track for its best monthly performance since June this year.
Against the dollar, sterling was up 0.5 percent at $1.5390, with the greenback struggling after data showed US inflation was still rather muted.
The euro was higher at 71.88 pence, though not far from a recent two-month low of 71.45 pence struck on Thursday, with month-end demand helping the single currency.
Attention will now be on the BoE's Quarterly Inflation Report, which will be released on "Super Thursday" along with a rate decision and the minutes from the latest monetary policy committee (MPC) meeting.
"Sterling is sidelined with little anticipation of next week's inflation report. Somewhat more hawkish Fed signals, however, could see some pulling forward of BoE hike expectations and support sterling in the near term," said Josh O'Byrne, currency strategist at Citi.
The BoE has said it does not need to wait for the Fed before it raises rates. But many investors reckon it would not risk going first. Apart from considering the Fed's moves, the BoE will also be looking closely at domestic data, which have suggested a period of rapid expansion might be ending. Concern the UK could leave the European Union gives investors another reason to be edgy about the pound.
On Thursday, Standard and Poor's warned the UK might face a downgrade of at least one notch in its AAA rating if it votes in a referendum to leave the EU, and two notches if relations between London and Brussels sour or that vote prompts secession from the UK by Scotland.