Sterling had earlier hit its highest level in over a month versus the euro at 69.30 pence but later gave up some ground as the single currency staged a late burst higher against the dollar.
The pound's gains against the dollar take it to levels unseen since Black Wednesday, Britain's 1992 currency crisis of September 16 when the government withdrew sterling from Europe's Exchange Rate Mechanism (ERM).
"Sterling has been driven by euro/dollar where the sharp move up has helped cable (sterling/dollar)," said Lee Ferridge, head of currency strategy at Rabobank in London.
UK interest rate futures are pricing in a rate rise of at least a quarter of a percentage point by March this year.
"What's priced in is probably pretty accurate for the next six months or so," Ferridge said.
By 1600 GMT, the pound had slipped to stand unchanged from late New York levels at 69.53 pence per euro.
The dollar has been under pressure for months due to investor concerns about the US current account deficit and expectations that US interest rates will remain low for a while yet. The pound stood more than 0.5 percent up on the day at $1.8289 after peaking at $1.8322.
"Sterling is the place to be right now. It offers more attractive qualities than being long the euro," said Paul Mackel, currency strategist at ABN Amro in London.