The pound climbed to fresh five-year highs against the U.S. dollar on Tuesday, as the release of strong U.K. service sector data added to speculation the Bank of England could raise interest rates at the beginning of next year.
Cable was likely to find support at 1.6866, the session low and resistance at 1.7042.GBP/USD hit 1.6950 during European morning trade, the pair's highest since August 2009; the pair subsequently consolidated at 1.6949, advancing 0.48%.
Markit research group said the U.K. services purchasing managers' index rose to a four-month high of 58.7 last month, from a reading of 57.6 in March. Analysts had expected the index to remain unchanged in April.
The report came after data last week showed that manufacturing activity in the U.K. expanded at the fastest rate in five months in April, bolstering the outlook for the wider recovery.
A recent string of upbeat reports about the U.K. economy has raised expectations the BoE could raise borrowing costs ahead of other central banks.
Meanwhile, the dollar remained mildly supported after the Institute of Supply Management on Monday said its non-manufacturing purchasing managers' index rose to a five-month high of 55.2 in April, from a reading of 53.1 in March, compared to expectations for a rise to 54.1.
Sterling was also higher against the euro, with EUR/GBP slipping 0.12% to 0.8216.
In the euro zone, official data earlier showed that the number of unemployed people in Spain dropped by 111,600 in April, compared to expectationd for a decline of 49,100, after a 16,600 fall the previous month.
Separately, Markitcsaid that Spain's services PMI rose to a six-year high of 56.5 last month, from a reading of 54.0 in March. Analysts had expected the index to tick up to 54.4 in April.
Italy's services PMI swung back into expansion territory last month, rising to 51.1 from a reading of 49.5 in March, beating expectations for an uptick to 50.4.
Later in the day, the U.S. was to release data on trade.
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