The pound rallied on Monday, persisting at more than two-week highs against a broadly weaker dollar, as traders await key data on the UKs manufacturing industry this week.
By 0836 GMT sterling was up 0.46% against the dollar at $1.25530, its highest level since May 5.
The strength of the pound is largely down to broad dollar weakness, as investors sold the U.S. unit on hopes that loosening lockdowns in China could help global growth.
“Weve gone from a bit more of a UK focused backdrop on cable last week, to this week going into a global focus,” said Simon Harvey, head of FX Analysis at Monex Europe.
“PMI data tomorrow will increase emphasis on how current levels of economic activity in the UK is faring against the Eurozone and the U.S., and what this means for the UK growth outlook,”
Strong labour numbers early last week had reinforced expectations that the BoE will need to continue raising interest rates to fight high inflation. Data on Friday showed British retail sales jumping unexpectedly in April.
But expectations were tempered days later when inflation hit a 40-year high, raising concerns over how far the BoE will be able to hike rates without precipitating an economic downturn.
“Were seeing in the last week or so a renewed appetite from policy makers to continue hiking rates despite the continuing growth outlook,” Harvey said.
“So its a bit of a turnaround from May 5 when it was assumed they would hike once or twice before going on a long pause before summer.”
The BoE has raised interest rates four times since December – more than any other major central bank.
Against the euro, sterling was largely flat, trading 0.04% down at 84.56 pence by 0829 GMT.
(Reporting by Lucy Raitano; Editing by Saikat Chatterjee and Ed Osmond)