The pound rose against an embattled dollar on Wednesday to its highest this year, closing in on $2 as the outlook for the U.S. economy soured and expectations of Federal Reserve rate cuts increased further.

The pound has risen 3 percent versus the dollar over the last week as strong retail sales and mortgage data pared back expectations on the extent of monetary easing likely from the Bank of England.

Markets are now pricing in a less than one-in-three chance of a UK rate cut by June while Fed funds futures are pointing to 50 basis points of easing next month.

U.S. consumer sentiment hit a five-year low and Fed Vice Chairman Donald Kohn said on Tuesday that a weak economy was a bigger concern than inflation as the central bank tackles "difficult times".

"The weak numbers out of the U.S. and comments from the Fed have hit the dollar, and the pound has benefited as it has gone through some key levels," said Geraldine Concagh, economist at AIB Group Treasury in Dublin.

By 0854 GMT the pound had risen as high as $1.9971, up half a percent, and its highest since late December. The euro was up 0.2 percent at 75.49 pence.

Concagh added sterling could see fresh gains against the greenback later in the day pushing the pound above $2 if durable goods and homes sales data is weak.

Revised fourth quarter GDP data is due at 0930 GMT, with growth seen confirmed at a quarterly 0.6 percent.

Sourced by Reuters.