The pound gained ground against the dollar on Thursday (22 September) following the US Federal Reserve's decision to keep interest rates unchanged and upbeat economic data over the state of the manufacturing sector.

Late on Wednesday evening, the Fed signalled that it could still increase rates before the end of 2016, provided there is an improvement in the labour market. Three of the current 10 voting members dissented, preferring an immediate rate hike, while three of the 17 Fed officials at the meeting said they expected no rate hike whatsoever this year.

"The FOMC is deeply split, but the hawks are pushing hard as the labour market tightens," said Ian Shepherdson, chief economist at Pantheon Macroeconomics.

"Wage, growth and inflation data will need to rise to trigger action, but that's a decent bet for December."

Fed chairwoman Janet Yellen said she expects one rate increase in 2016 as such increases are required to keep the economy from overheating and to avoid high inflation.

"We judged that the case for an increase has strengthened but decided for the time being to wait," Yellen told reporters following the announcement. "The economy has a little more room to run."

The Fed's decision boosted the pound, which climbed above the $1.30 threshold against the dollar, trading 0.28% higher against the greenback at $1.3067.

The US currency, meanwhile, traded 0.35% up against the yen at ¥100.67, but declined against the euro, with the common currency fetching $1.1238, up 0.49%.

"Whether sterling can now hold above this level is very much open to question, as the meeting minutes showed most policymakers still see interest rates rising before the year end," said Chris Saint, senior analyst at Hagreaves Lansdown currency service.

"While markets aren't yet persuaded this is a done deal, a move in December would be the far more likely option given November's meeting will be just a week before US Presidential elections."

Sterling, which was broadly flat against the euro, trading at just over €1.16, was also buoyed by a positive reading on the manufacturing sector, which showed the industry continued to expand solidly in September.

However, the Bank of England's Financial Policy Committee warned that despite the positive data that has so far followed the UK's European Union referendum, Britain faced a challenging period ahead.

Elsewhere, the New Zealand dollar also retreated versus the pound after the Reserve Bank of New Zealand held interest rates at 2% but didn't rule out future cuts.