The pound last traded up 0.3 percent on the day at $1.6206 and more gains could take it towards the September peak of $1.6310. Analysts said the pound could gain further against the dollar if US politicians cannot head off the tax rises and spending cuts due to kick-in at the beginning of 2013.
"Sterling tends to be caught in the middle of the euro and the dollar but we are seeing some underpinned strength, which (today) seems to be flow driven," said Daragh Maher, currency strategist at HSBC Markets. Traders said demand from Middle East investors buoyed the pound in early trade. Later, demand from corporates also surfaced, while one trader reported Asian names buying. The pound also recovered against the euro, which was down 0.1 percent at 81.29 pence, having hit a near two-month high in Asian trade of 81.505 pence.
Against the Japanese yen, the pound rose to its highest level since April 2011 at 136.37 yen. The yen weakened broadly after the weekend election victory of Shinzo Abe's conservative Liberal Democratic Party, which is committed to aggressive monetary easing.