STERLING climbed to a 14-year peak against the ailing dollar yesterday, underpinned by the prospect of further rises in British interest rates.
The pound also performed strongly against the yen and the euro, which drew strength from positive economic data from Europe, hitting a 14-year high against the greenback.
The pound leaped to around $1.9917 from Monday's level of $1.9764 - reaching its highest level since the week before the "Black Wednesday" in September 1992, when Britain crashed out of the European Exchange Rate Mechanism.
Sterling closed at $1.9847 and rose to 106.9 on the Bank of England's trade-weighted index, the highest since the series began in 1990.
"Markets continue to be getting more hawkish on UK interest rates relative to the US.
"It's the same in Europe after hawkish comments from ECB (European Central Bank) officials," said Mitul Kotecha, head of global foreign exchange research at Calyon, the investment arm of French bank Credit Agricole.
"Any currency that shows some sentiment toward higher rates is getting pushed higher - sterling and the euro are key currencies in this."
The 13-nation euro bought $1.3033 in European trading, up from $1.2954 in New York late Monday.
The euro rose after new data showed that eurozone factory orders increased by 1.4% on the month in November - beating economists' expectations of a 1% gain.
The pound, which appeared headed for the $2 mark near the end of last year but then retreated, has been helped recently by a surprise Bank of England interest rate increase this month. Minutes from the meeting at which that decision was made will be made public today and will be closely examined by City economists.
British base rates stand at 5.25% and are expected to rise again in February or March to stifle inflationary pressures.
The euro has been supported by perceptions that the European Central Bank will continue raising interest rates while the US Federal Reserve keeps its rates on hold - as it has over recent months - or even cuts them.
The Fed meets at the end of the month to set US rate policy. The US central bank has pegged its main interest rate at 5.25%.
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