Sterling hit a one-month high against the dollar on Thursday, tracking the firming euro following comments by European Central Bank President Jean-Claude Trichet that were more hawkish than expected.
After the ECB left interest rates unchanged as many in the market had forecast, Trichet said there was abundant liquidity and it could lead to inflationary pressure in the medium term.
With trade dominated by moves in the euro and dollar, the market showed little reaction to a survey showing growth in Britain's manufacturing sector accelerated in March, thanks to robust demand for consumer goods and export demand from countries like the United States and China.
"The euro spiked higher against the dollar after more hawkish than anticipated comments by Trichet and that lifted a few other currencies including sterling," said Neil Parker, currency strategist at Royal Bank of Scotland Financial Markets.
"There wasn't much of an independent move for sterling." Sterling rose to $1.8604, its highest since early March before paring its gains to $1.8543, still 0.5 percent up on the day. Against the euro it hit a one-week high of 66.39 pence.
Sterling's trade-weighted index, which has a euro weighting of 64.82 percent, a dollar weighting of 16.49 percent and a yen one of 7.0 percent, hit a one-week high earlier.
The Halifax bank is due to release its March report on British house prices on Friday.
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