Sterling strengthened today as data showed UK inflation unexpectedly stayed close to its highest levels in six years in January.

This firmed up investors' bets that the Bank of England will raise interest rates again in May. 

The Bank of England surprised financial markets last week by indicating that rates could move up faster than previously expected, as it wanted to bring inflation back to its target of 2% within two years rather than three. 

This prompted markets to price in as much as a 70% chance of a quarter-point rise in interest rates by May.

There is also a roughly 50% chance of a further increase in rates to 1% by the end of the year - a level last seen in 2009. 

Today's numbers showed consumer price inflation held at an annual rate of 3% in January, unchanged from the month before and above a consensus forecast of 2.9%.

Sterling jumped to as high as $1.3924 after the data, up from $1.3886 beforehand. 

Against the euro, sterling strengthened by a third of a percent to 88.59 pence. 

The pound had skidded to a three-week low against the dollar on Friday after the EU's chief Brexit negotiator Michel Barnier warned a transition deal was far from assured. 

Those comments, as well as broad strength in the dollar amid a sharp stock market sell-off, handed sterling its biggest weekly falls since October, as investors worried that Britain could leave the European Union in a disorderly manner. 

Analysts said British wages data due next week, as well as a major upcoming speech by the prime minister on Brexit, would be the next determinants of sterling's direction.