Sterling stood at a 14-month high against the euro as currency dealers speculated on another rise in British interest rates.
Analysts forecast the Bank of England's monetary policy committee (MPC) would lift the cost of borrowing to 4.25 per cent on Thursday, although the decision remains a close call.
The pound has strengthened against the euro since the Madrid terrorist attacks on March 11th and was trading at 1.519 - its highest level since February last year.
Expectations that the European Central Bank (ECB) will lower rates in the coming months to boost the economy also helped to make sterling more attractive.
The City had been gearing up for a rate rise on Thursday in the wake of figures showing record consumer debt, rising employment and sustained growth in house prices.
But official data released yesterday, which showed that manufacturing output fell 0.6 per cent between January and February, dampened expectations of an imminent rise.