The pound hovered just off two-week highs against the dollar, however, after comments on Monday by regional Federal Reserve presidents, Rafael Bostic of the Atlanta Fed and Eric Rosengren from Boston, strengthened bets the US central bank would kick off tapering by year-end or even sooner. Sterling has performed well in recent weeks as a fall in COVID-19 cases has allowed the British Government to lift most social-distancing rules, while the Bank of England (BoE) last week flagged how it might gradually rein in stimulus.

British consumer spending rose strongly in July, data from Barclaycard showed, up 11.6 percent on pre-pandemic levels. Spending in shops too increased by 6.4 percent in July from year-ago levels, the British Retail Consortium said.

By 10.15 GMT, the pound was at 84.575 pence, up 0.2 percent on the day, the highest since last February.

It rose further after the ZEW survey showed investor sentiment in Germany deteriorated for the third month straight in August.

The pound has strengthened 0.8 percent in August so far against the euro, following on from three straight months of gains.

The euro has tumbled 1.4 percent against the dollar and 1.8 percent against the pound since July 8, when the ECB unveiled a strategic review committing to boosting inflation.

Currency traders are increasingly focused on which central banks are moving forward with unwinding pandemic-era stimulus.

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The soft ZEW data would keep the pressure on the euro, they said, predicting "euro/sterling could fall further".

Against the dollar, the pound hung almost unchanged around $1.3856, just off the $1.38370 which was the lowest since July 27.

Analysts said the sterling-dollar rate was being driven by dollar moves, with the prospect of a further fall if Cleveland Fed President Loretta Mester strikes a hawkish tone when she speaks later in the day.

Speaking earlier, Jeremy Thomson-Cook, Chief Economist at international business payments specialist Equals Money, said: "Sterling continues to hold its head up against a newly stronger USD and a weaker euro this morning with Thursday’s GDP print the most important number due this week.

"While the headlines on Sunday of a tiff between Johnson and Sunak had a small effect yesterday on markets, we don’t expect much more to be seen from this.

"It smells like spin and Cabinet positioning and we must remember this is August.

"Silly season is upon us and we must be only a few days from a paper telling us that a great white shark has been seen off the coast of Devon.

"Sterling’s waters are not shark-infested at the moment either and should trade cautiously until that growth number."