For the first time since February, the sterling rose by 0.2 percent at 85.745p pence per euro today, having hit a new one-month high. The pound also rose against the US dollar due to lockdown easing measures and the Bank of England raising its forecast for economic growth.
It held its gains, reaching as high as £1.01 yesterday and was at the same today.
Jeremy Stretch, head of G10 FX strategy at CIBC, said: "Sterling is very closely associated with what's happening in the risk environment, so if we were to see equity markets and global risk appetite being roiled by inflationary pressures then sterling will correspondingly struggle to make the gains we would otherwise have expected on the basis of supportive fundamentals."
MUFG head of research, Derek Halpenny, added the data is a "positive outlook" for the pound.
He said: "The data today is consistent with a positive outlook for the pound.
"GBP has underperformed in Q2 to date, being the 2nd worst performing G10 currency.
"We see scope for a catch-up with the markets concluding the BoE outlook is too pessimistic leading to sooner taper speculation and the prospect of short-term rates drifting further higher, helping support GBP."
Trade figures today also saw Britain imported more goods from non-EU countries than EU countries during the first quarter for the first time since records began in 1997.
Data for March beat market expectations and increased confidence about Britain's economic recovery from the pandemic.
READ MORE: Pound to euro exchange rate: Sterling 'has best day' this year
Responding to the figures, Chancellor Rishi Sunak hailed March's growth as a "positive sign of things to come".
Mr Sunak said: "Despite a difficult start to this year, economic growth in March is a promising sign of things to come.
"Our Plan for Jobs is working – following the comprehensive package we put in place, almost two million fewer people are expected to be out of work than initially forecast, and the UK economy is in a strong position to grow quickly as we emerge from the pandemic."
This comes after the Bank of England revised its economic growth forecast for this year.
The Bank raised its estimated GDP growth to 7.25 percent for this year, up from its forecast of five percent made earlier this year.
Britain's economy has not grown by such levels since World War II, with the closest comparison being 1941 when the economy grew by 8.7 percent.
Darren Morgan, ONS director of economic statistics, said: "The strong recovery seen in March, led by retail and the return of schools, was not enough to prevent the UK economy contracting over the first quarter as a whole, with the lockdown affecting much of the services sector.
"However, construction grew strongly over the quarter and, in March, was above its pre-pandemic level.
"Manufacturing also recovered from an initial fall, increasing strongly in February and March, as businesses continued to adapt and make themselves Covid-19 secure."
The UK economy is expected the return to pre-pandemic by the end of the year.
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