LONDON: Sterling surged by more than two cents to a three-week high against the dollar on Wednesday as poor US data sent the greenback lower, while British numbers showed Britain's services sector still advancing robustly.
The pound took a boost on Tuesday from the release of a draft plan aimed at keeping Britain in the European Union.
That, and the solid read from the survey of service sector purchasing managers, have helped spark a revival after a 6 percent fall since November.
Analysts say the bounce is largely the product of a build-up of bets on further falls in sterling - meaning many of those who have bought the pound this week are cashing in trading gains they have racked up by selling the pound since November.
But the currency has been helped by signs a deal will be signed with Brussels later this month that will give Prime Minister David Cameron something to fight for in a referendum on Britain's EU membership, getting the vote out of the way in the middle of this year.
"If marketed successfully...we believe the proposals will provide an important basis for the PM to influence more of the undecided to vote to remain in the EU as opposed to leave," Deutsche Bank economist George Buckley said in a note.
"This supports our baseline case - that the UK will vote, on June 23, to remain in the EU by a relatively narrow margin."
Sterling has also been hammered since December by a collapse in the chances of a rise in British interest rates this year.
The dominant impulse in afternoon trade came from signals which similarly added to fading expectations of another interest rate rise in the United States.
Jobs numbers there were in line, but services data was poor and New York Fed chief William Dudley said the weakening outlook for the global economy and any further strengthening of the dollar could have "significant consequences" for the health of the US economy.
That drove the dollar broadly lower. The pound rose 1.25 percent to $1.4591 by 1625 GMT. Against the euro, sterling was steady at 75.76 pence.
Economists are waiting to see if the Bank of England cuts its growth forecast for Britain in 2016 in response to lower demand from emerging economies and other factors when it publishes its latest outlook on Thursday.
Data released by the National Institute of Economic and Social Research early on Wednesday showed Britain's economy is unlikely to be dented this year by the latest signs of a slowdown in global output.
"Rate hike expectations have been pushed back too far now in the UK in our view, and with UK/EU negotiations seemingly making progress this week, we see a potential for reduction in 'Brexit' risk premium sooner than many in the market expect," BNP Paribas currency strategists wrote in a note to clients.
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