Sterling traded close to a two-month high against the US Dollar while slipping slightly against the Euro, as investor concerns over the UK's fiscal outlook eased.
Confidence improved after reports indicated that Andy Burnham is expected to appoint Home Secretary Shabana Mahmood as chancellor when he takes office as prime minister next week, instead of the more left-leaning energy secretary Ed Miliband, a move seen as reinforcing fiscal discipline.
Britain's economy posted only modest growth in May, with expansion in the services sector offset by contractions in other industries, highlighting continued caution among businesses.
Meanwhile, the US Dollar was broadly steady against major currencies as softer inflation data, which reinforced expectations of interest rate cuts, balanced concerns over the potential for renewed gains in oil prices.
The pound slipped 0.05% to $1.3533 after surging 1.13% in the previous session to $1.3556, its strongest level since 12th May.
Markets are likely to view the decision not to appoint Ed Miliband as chancellor as mildly positive, given his preference for a more expansionary fiscal policy, Reuters reports.
Andy Burnham is expected to be formally sworn in as Britain's prime minister on 20th July.
The Office for Budget Responsibility warned last week that the government will need to raise taxes or cut spending to prevent public debt from climbing further from its current level.
Stronger productivity growth would allow the UK economy to expand at a faster pace before inflationary pressures emerge, while also making it easier for the government to generate enough tax revenue to finance public spending.
However, analysts believe the policies proposed so far by incoming PM Andy Burnham are unlikely to significantly improve the UK's long-term growth outlook, although positive economic conditions could still work in his favour.
While the UK economy has yet to fully emerge from its challenges, a combination of resilient economic growth and stagnant employment suggests that the improvement in productivity seen during 2025 has carried over into 2026.
The Euro gained 0.13% to 84.79 pence after sliding 0.72% in the previous session to 84.55 pence, its weakest level since 10th June.