Sterling hit a seven-week high against the dollar and firmed against the euro on Monday, finding favour as the market focus shifted to differences in interest rates. The pound gained in line with other high-yielding currencies including the New Zealand dollar, which soared to a 22-year high versus the greenback. "The high yielders are clearly in favour today," said Riz Din, foreign exchange strategist at Barclays Capital in London.

British interest rates stand at 4.75 percent, compared with 2.5 percent in the United States and 2.0 percent in the eurozone and strong economic data in recent weeks has fuelled expectations of another rate rise this year. In an environment of low currency volatility, investors can borrow cash in currencies where short-term interest rates are relatively low to buy higher-yielding ones.

Sterling hit its highest level against the dollar since January 4 at $1.8999 but later eased back to $1.8950 by 1515 GMT. The pound was also stronger against the euro at 68.87 pence, up around 0.2 percent on the day.

Copyright Reuters, 2005