Sterling hit a one-month high against a weakening dollar and was flat versus the yen on Tuesday.
Investors are awaiting business activity figures on Thursday and comments from Bank of England governor Andrew Bailey at a meeting of central bankers at Jackson Hole on Friday.
Official data showed signs of improvement for the British economy in the retail sector on Friday as the negative impact of high inflation on consumer spending is starting to diminish.
Citi said it would be focused on Bailey's comments, and in particular, "whether he will double down on suggestions that monetary policy transmission is largely already worked through".
The pound climbed 0.15% against the dollar to $1.3002 after hitting $1.3012, its highest level since July 17.
The greenback hit a seven-month low on Tuesday, with traders waiting for clues on Friday at Jackson Hole about the speed of the Fed monetary easing cycle.
Money markets priced in 40 basis points of rate cuts by year-end, implying a 25 bps move and a 60% chance of a second cut.
Euro/sterling rose 0.2% to 85.18 pence per euro.
"All else being equal, the case for higher sterling versus euro, yen and Swiss franc remains compelling," said Kamal Sharma, forex strategist at BofA, arguing that long positioning has been reduced and momentum metrics are at "extreme levels" for some of the pound's more popular carry crosses.
However, the British currency showed it was vulnerable to a near-term volatility shock, and the Middle East remains a key danger for risky assets.
"The pound was unlikely to be singled out for particular scrutiny in a geo-political episode," BofA's Sharma said.
Sterling is seen as a currency which performs well when investors' risk appetite is high.
The pound was flat versus the yen at 190.30; it hit its highest since January at around 180 in early August.
(Reporting by Stefano Rebaudo)
