The pound hit a seven-week high against the dollar on Monday (5 September), after a survey showed Britain's service sector last month recovered from the post-Brexit slump recorded in July.
Having touched $1.3375, its highest level in almost two months, earlier in the day, by mid-afternoon sterling was trading at $1.3325, up 0.23% against the dollar. The UK currency was also 0.11% higher against the euro, exchanging hands at €1.1936.
Data released earlier in the session, showed Markit's Purchasing Managers Index for the services sector rose from a four-year low of 47.4 in July to 52.9 in August, comfortably beating expectations for a 50 reading. The 5.5 point increase month-on-month was the was the largest on record over the 20-year history of the survey and followed a record drop of 4.9 points in July.
Together with positive reports on the health of the manufacturing and construction sectors released last week, the data looks to have allayed fears of Britain entering a post-Brexit vote recession.
"Since the referendum economic indicators have by and large held up pretty well, and if the positive mood music continues that should put a spring in the step of the pound on the currency markets," said Laith Khalaf, senior analyst at Hargreaves Lansdown.
"More robust economic data would also make the central bank think twice about any further loosening of monetary policy, and may also play its part in determining the future of austerity, as we approach the new chancellor's Autumn Statement later on in the year."
Elsewhere, the dollar was broadly flat against the euro but slipped 0.58% against the yen to ¥103.32. With US markets close for Labour Day, analysts suggested investors were still coming to terms with last week's underwhelming non-farm payrolls report.
Data released on Friday showed the US economy added 151,000 jobs last month, slowing sharply from the previous two months and falling short of the consensus forecast for a 173,000 gain. The lower-than-expected figure seemed to all but rule out the chances of the Federal Reserve hiking interest rates this month.
"The initial reaction was the weakening of the dollar against a basket of other currencies," said Naeem Aslam, chief market analyst at Think Markets UK.
"However, the dollar may start to recover its lost ground as investors will sense that the Fed are not only paying attention to the US labour market but are also focused on the health of the world economy."