The prospect of interest rate rises has helped both sterling and the euro to strengthen.

The pound started the day up against most currencies at $1.88265, €1.48165 and 222.01500 yen.

In the UK, the release of the minutes from the last meeting of the Bank of England's monetary policy committee (MPC) this week is set to show how ready the MPC is to up rates for a second time this year, with many analysts expecting rates to rise in November.

The likelihood of a hike in interest rates also increased as the World Economic Outlook from the International Monetary Fund (IMF) published last week showed the UK economy is set to grow faster than anticipated at 2.7 per cent, fuelling inflation concerns.

In Europe, two members of the rate-setting council of the European Central Bank (ECB), Axel Weber and Klaus Liebscher, spoke out over the dangers of rising inflation.

Mr Weber and Mr Liebscher both spoke at the IMF annual meeting in Singapore last week about remaining vigilant over the threat of inflation into 2008, leading many to believe the ECB could increase interest rates to hold back rising prices.

Meanwhile, poor housing data from the US has furthered calls for the Federal Reserve to keep interest rates frozen, despite inflation fears, and helped to keep the dollar down.