The British pound rallied to its highest point of 2009 on Tuesday, getting a lift from worldwide demand for stocks and in particular hopes that the financial system has begun to recover.
The British pound blasted through its 2009 high of $1.5372 and carried on higher, climbing as high as $1.5495. That's up from $1.5335 on Monday.
The U.K. pound tends to move in the direction of equity markets, and U.S. stocks rallied on Monday on news from the housing and banking markets.
"Sterling has seen renewed support as a result of the renewed increase in market optimism, which is led by a rebound in equity markets," said Ian Stannard, currency strategist at BNP Paribas.
A report from the Associated Press that Goldman Sachs and Morgan Stanley have formally applied to repay government money also helped, he said.
Stannard said the U.K. benefits from good financial-sector news, even if it's not from U.K.-based firms, because so much of the country's economy is derived from that segment.
But reports that the British government has contacted investors about buying parts of their stakes in Lloyds Banking Group and Royal Bank of Scotland also contributed to the positive sentiment, he said.
Meanwhile, U.K. consumer-price inflation weakened to 2.3% in April from 2.9% in March, the weakest rate since January 2008.
Another inflation measure that's popular in the U.K., the RPI, fell 1.2% in April. That measure of inflation includes house prices.
The euro also was strong, up to $1.3624 from $1.3554.
The ZEW indicator of German economic sentiment jumped to 31.1 in May from 13.0 in April, above economist estimates of a 20.0 reading. The optimism of the financial experts is supported by modest signs of a recovery of the real economy over the past weeks, the ZEW Institute said.
The dollar was steady at 96.21 yen.
Data on U.S. housing starts for April are due at 8:30 a.m. Eastern.
