Sterling rallied to an eight-week high against the dollar and jumped versus the euro on Monday on speculation that rising inflation could prompt the Bank of England to raise interest rates, possibly as soon as May. The pound also benefited against a broadly faltering euro, which suffered as last week's short-covering rally lost steam and investors sought clearer signs that progress was being made to improve the eurozone's sovereign safety net.
Sterling rose as high as $1.5955, its strongest since November 23, climbing above $1.5935, the 61.8 percent Fibonacci retracement of the pound's stumble in November-December, which could pave the way for a test of $1.60. By 1605 GMT it had edged back to $1.5908, up 0.3 percent on the day. The euro fell a full percentage point to 83.50 pence, pulling back from a rise to near 85 pence on Friday. Traders said bids were rumoured at 83.50 and 83.40 pence.