Pound at highest level this year

Pound vs dollar

The pound has risen to its strongest level this year against the dollar, as investors grew less pessimistic about the health of the UK banking sector.

Sterling climbed as high as $1.5523 against the dollar - the highest since mid-December. It also rose against the euro to 1.1410 euros.

The pound got a lift as UK bank shares gained on hopes the worst might be over for the battered sector.

In January, the pound hit a 23-year low of $1.35 against the dollar.

Last July, the pound was worth more than $2 but fell sharply as the depth of the UK's economic downturn became clear.

Optimism about the UK's financial sector was sparked by a Financial Times report that the government was considering a sale of its shares in Lloyds and RBS.

Currency analysts expect the pound to continue to strengthen, particularly against the euro, as economic data from the euro zone continues to be gloomy.

"There is no doubt the UK economy is still in a bad way," said Mark O'Sullivan, director of dealing at Currencies Direct, a London-based foreign exchange trader.

"But currency markets are taking the view that sterling will outperform both the dollar and euro going forward," he added.