In European afternoon trading the euro rose sharply against the dollar, extending earlier gains made after stronger-than-expected German business sentiment data from the Ifo research institute.
The market is focused on the House of Lords economic affairs committee which will take evidence from Bank of England Governor Mervyn King, Deputy Governor Andrew Large and Monetary Policy Committee members Kate Barker, Charles Bean and Richard Lambert at 1430 GMT. Investors are keen to see if they give clues on the future path of interest rates as recent upbeat data cooled down speculation that the BoE might lower the cost of borrowing again.
"It was dragged by the euro. Ifo was much higher than expected," said Marios Maratheftis, currency strategist at Standard Chartered.
"(Investors expect) there will be no more interest rate cuts this year so if we don't see any change from the BoE it should be enough to keep sterling supported."
By 1410 GMT sterling had hit a one-month high of $1.7837, up 0.7 percent on the day. Against the euro it was slightly weaker at 67.82 pence.
Analysts say a positive sterling factor also came from reports this week that German utility RWE planned to list up to 30 percent of Thames Water, valued at around 13-15 billion euros.