Sterling jumped to a two-month high against the dollar during European trading hours, boosted by risk appetite and optimism that Greece can reach a debt swap deal with its creditors by the end of this week.
The main driver behind the rise was not based on domestic UK fundamentals and the pound is mainly tracking gains in the euro. Optimism that Greece may avoid a chaotic default buoyed sentiment towards the euro and broadly lifted riskier assets and currencies, including sterling.
Pound strength is also driven by a weakening dollar. End-of-month repositioning is resulting in a dollar sell-off. GBPUSD rose to a high of 1.5774, the highest level since November 30.
Based on this sterling remains vulnerable due to the weak UK economic recovery and due to expectations that the Bank of England will loosen policy and introduce another round of QE (quantitative easing). Expanding its asset purchase program will weigh on the pound.
Meanwhile sterling could come under pressure as soon as later this week when purchasing managers’ surveys on manufacturing, construction and services could give further evidence of the fragility of the UK economy.