The pound popped above the psychologically important $2 level versus the dollar on Monday for the first time since May 1, as investors anticipate a UK rate hike in July rather than August.
Bank of England minutes released last week showed that four of its nine-strong monetary policy committee - including Governor Mervyn King - voted for a rate hike this month, wrong -footing investors who had only expected two dissenters from the decision to hold rates steady at 5.5 percent.
A Reuters poll taken after the minutes showed 44 of 64 economists surveyed now expect an interest rate hike in July, keeping the pound a favoured destination for the carry trade.
"Cable has recovered from its lows because of a change in interest rate expectations," said Paul Mackel, senior currency strategist at HSBC. The carry trade, in which investors borrow low-yielding currencies like the yen to invest in assets with higher returns, has supported sterling. The pound has gained 8 percent versus the dollar since this time last year.
At 1412 GMT, the pound was trading at $1.9990, just off the session high of $2.0006. The euro was steady at 67.35 pence. Sterling rose to as high as 105 against a basket of currencies, its highest since mid-February.