The pound rose to more than a three-week high against the euro today as investors speculated that the Bank of England (BoE) may sound more hawkish on interest rates this week.
The BoE's rate-setting monetary policy committee (MPC) will meet on Thursday to discuss whether to increase interest rates, and analysts expect the MPC to keep its current rate of 0.25 per cent unchanged.
However, investors have begun speculating on the possibility of a more hawkish policy from the BoE.
"Analysts believe that fears over the weak pound’s effect on inflation could help to increase the chances of more hawkish sentiment from the bank," said Paresh Davdra, chief executive and co-founder of RationalFX.
"However, Brexit uncertainty continues to cloud the pound’s outlook. Investors will be looking to see if the pound can escape political pressures over the coming days to hold onto its gains as the BoE’s meeting approaches.”
The pound gained 0.2 per cent today, at less than 91 pence per euro for the first time since 18 August.
The more positive outlook for the pound comes on the back of better than expected manufacturing figures on Friday boosted sterling to a five-week high against the US dollar.
Today, sterling dipped less than 0.1 per cent against the dollar to $1.3188, a third of a cent off Friday's high.