London: The possibility of the Bank of England raising interest rates to prop up the pound helped steady the currency on Friday at more than 1.5 per cent above its low point for the week.
Sterling surged to its highest in a week against the euro on Thursday after it emerged that three members of the Bank of England's policy committee had voted for a rise in interest rates.
At a time when the BoE has blamed a rise in inflation past its 2 percent target on a weak pound, traders read the split vote as a warning that officials could seek to defend the currency with rhetoric or action, even as the economy overall slows.
In trade-weighted terms, the pound was another 0.1 percent higher in morning trade in London.
"Sterling will have another stab at rising (today)," said Naeem Aslam, Chief Market Analyst with retail broker Think Markets in London.
"But investors would remain quick in taking the profit off the table if we continue to fail (to break) the resistance of $1.2820. (That) would confirm the downward bias."
By 0747 GMT, the pound had gained 0.2 percent at $1.2778 and was roughly flat at 87.34 pence per euro.
"Dollar demand post Fed, political uncertainty in the UK post election, the Brexit negotiation overhang and depressed wages should make it difficult for the UK currency to run much higher right now," said Joel Kruger, an analyst with LMAX Exchange in London.
But he also said that technical analysis of sterling painted a more optimistic picture.
"The latest round of setbacks are viewed as corrective with the market expected to be very well supported on dips ahead of 1.2500," he said, pointing to the possibility of a rebound to $1.35 in the weeks ahead.