LONDON: Sterling climbed to a four-month peak against dollar on Wednesday as the US currency came under broad pressure from speculation the Federal Reserve could announce another round of monetary easing this week.
Expectations that the German Constitutional Court will rule in favour of Germany participating in the euro zone bailout fund later in the session also boosted perceived riskier currencies.
Sterling hit a high of $1.6098, its highest level since mid-May. Against the euro the pound was steady at 79.91 pence, though the single currency held within sight of Monday's two-month high of 80.11 pence.
"The main factor affecting sterling is dollar weakness. Over the next couple of days what goes on in Europe and the US will be the big drivers," said Kathleen Brooks, research director at Forex.com.
"Chances are we will get risk positive events coming out of Europe which will be pound positive and dollar negative. We may see a bit of a bounce but tomorrow will be the key event."
Speculation that the Federal Reserve could announce more monetary easing after its two-day policy meeting on Thursday was heightened after a weak US jobs reading on Friday.
A warning from Moody's ratings agency on Tuesday that the United States could have its credit rating cut unless it reduces its heavy debt burden also weighed broadly on the dollar.
Investors were also likely to be focused on UK employment data, due at 0830 GMT, that could fuel demand for the pound if it is better than expected.
"More strong employment data would support the strong sterling performance we have seen against the dollar. However, there are major resistances above $1.61 in sterling/dollar and we would not expect much advance from here ahead of the Fed decision tomorrow," said Lloyds analysts in a note.
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