LONDON: Sterling inched up against the dollar on Tuesday and stayed close to four month highs as upbeat manufacturing data tempered concerns about a recession in Britain.
Nagging doubts over the economy remain, however, are seem as likely to slow gains.
Data released Monday showed UK manufacturing unexpectedly picked up in March, increasing at its fastest pace in 10 months and confounding analysts' forecasts for a slowdown.
Sterling was up slightly on Tuesday against the dollar at $1.6035, within range of Monday's $1.6063 peak, its highest level since mid-November 2011.
"Sterling looks like an okay bet for now as most of the bad news for the UK has been priced in," said Geoffrey Yu, currency strategist at UBS. "But I don't think investors are actively (favouring) sterling and in the next few months we think it is likely to head lower."
Market players said sterling's recent bullish tone was also being driven by expectations for further monetary stimulus in the United States. Such stimuli have weighed broadly on the dollar.
A strong run against the dollar helped the pound to touch a 13-month trade-weighted high on Monday of 82.0 and the technical outlook remained constructive. "Having traded above the 200-week moving average (against the dollar) for the first time since August 2008, a close above this level remains structurally positive for the pound." said Michael Hewson, analyst at CMC Markets.
The rally in sterling has come in spite of concerns about the UK economy, with the Organisation for Economic Cooperation and Development saying last week it expected the growth in the UK to contract by an annualised 0.4 percent in the fourth quarter of 2011.
Sluggish growth has already forced the Bank of England into pumping 325 billion pounds of stimulus in the shape of quantitative easing into the economy.
UK construction PMI is due for release at 0830 GMT, with economists in a Reuters poll looking for a slight pullback to 53.5 in March from February's reading of 54.3.
The euro edged up 0.1 percent against the pound to 83.20 pence, holding above last month's low of 82.83. Stop-loss sell orders were reported below 82.80.
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