Sterling strengthened above $1.90 versus the dollar for the first time in seven weeks on Tuesday, but hit a four-week low against the euro. Sterling's divergent moves were mainly driven by a broad decline in the dollar, which fell to a five-week low against the euro on concerns that central banks were shifting their reserves out of dollar assets. "Cable (sterling/dollar) benefited from the dollar's moves" said Kamal Sharma, foreign exchange strategist at Dresdner Kleinwort Wasserstein.

By 1515 GMT, the pound traded at $1.9050 after earlier hitting its highest level since January 3 at $1.9137. Against the euro, sterling shed 0.7 percent to trade around 69.38 pence, a four-week low.

Looking ahead, some analysts said growing expectations of another rise in UK interest rates after upbeat economic data in recent weeks could lend support to the pound.

On Wednesday, investors will scrutinise the minutes of the Bank of England's last policy meeting on February 9-10 for clues on the future path of interest rates. BoE Monetary Policy Committee member Kate Barker said in a newspaper interview that British interest rates may need to rise again but the peak in borrowing costs might not be much higher.

Short sterling interest rate futures sold off on Barker's remarks, with late 2005 contracts now pricing in a greater than 50 percent chance that rate will rise again by a quarter point to 5.0 percent.

"The minutes could be interesting especially in light of Barker's comments," said Sharma.

The BoE has left rates on hold for six months in a row after raising them five times between November 2003 and August 2004 to 4.75 percent.

Charles Bean, chief economist at the BoE was due to speak later on Tuesday.

Copyright Reuters, 2005