Sterling eased from its 14-year record high against the US dollar, as the prospect of an imminent UK interest rate hike appeared to fade.
The pound had risen above $1.99 on currency exchanges, almost breaking the key $2 rate, but slipped back to $1.969 on Wednesday.
Investors have been shifting into the pound and sterling-denominated assets. because of high rates, analysts say.
But Bank of England minutes suggest another rise next month is unlikely.
Strong pound
The Bank's rate-setting body, the Monetary Policy Committee (MPC) voted 5-4 for January's shock rate rise, the minutes have shown, the narrowest possible margin for the increase.
Further doubt that rates would rise further in the short term has been cast by comments from the governor of the Bank.
"The supports for sterling are fading"
Mervyn King said that the quarter of a point rise to 5.25% was vital to prevent inflation straying further beyond the government's 2% target - and that it may avoid the need for bigger rate rises later.
"The supports for sterling are fading," said Lehman Brothers currency strategist Phyllis Papadavid.
However most analysts expect there will be another interest rate at some point in 2007.
A strong pound is usually good news for UK shoppers, but may hurt exporters.
Investors hunt countries or currencies where they can get the best return on their capital.
High interest rates attract money, especially if other nations have not raised their borrowing costs in line with the changes.
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