Sterling hit a one-week high against the dollar briefly, and this morning the US currency stood at 1.7208 to the pound, with the euro at 1.4635.

Fears that interest rates might be further cut after August's trimming to 4.5 per cent were alleviated by Bank of England governor, Mervyn King.

Mr King told the House of Commons Treasury Select Committee that rates may in fact be forced up if risks detailed in last week's inflation report materialised.

Bank of England deputy, Rachel Lomax, prompted a swift return to normal levels for the pound as she commented that the dollar "looked a good buy" due to interest rate differentials.

Many experts believe that the US rate of interest will join the UK's figure in the coming months, closing a gap of 0.5 per cent.

The US currency has gained ten per cent against the pound this year as the Federal Reserve has raised its interest rate seven times.