By Samuel Indyk
LONDON (Reuters) -The British pound rose for the first day in five against a softening dollar on Tuesday as risk-sentiment improved, helping to push sterling towards the 10-month high it reached last week.
The pound was last up 0.4% at $1.2431, having dropped on the four previous trading sessions.
"The risk-correlated currency continues to swing with global investor sentiment," George Vessey, FX & macro strategist at Convera, said.
"The rebound in risk appetite this morning has seen equities rally across the board along with the highly correlated British pound."
World stocks were higher on Tuesday, with European markets leading the way as traders bet that interest rates would soon peak and come down later this year.
The Bank of England is not scheduled to hold a policy meeting until next month, but Governor Andrew Bailey is scheduled to speak on Wednesday and could give clues on the future path for monetary policy.
"Chief economist Huw Pill had a speech last week that was more on the hawkish side but Bailey, as governor, is likely to take a more cautious approach and won't want to pre-commit to any action," Danske Bank FX analyst Kirstine Kundby-Nielsen said.
"Given the very large surprise we saw in inflation last time, we still think the Bank of England will hike by 25 basis points in May," she added.
Traders price in around a 75% chance of a 25 basis point hike in May, with around a 25% chance the central bank keeps rates unchanged.
Britain's finance ministry on Tuesday named Megan Greene, global chief economist at Kroll, to succeed Silvana Tenreyro on the BoE's Monetary Policy Committee after Tenreyro's term ends in July.
Tenreyro is one of the most dovish members on the MPC, and last week said the central bank might need to start cutting interest rates sooner than previously thought.
"She (Greene) brings significant experience from her work across financial services and academia and we will benefit greatly from her contributions to our policy discussions," BoE's Bailey said in a statement.
The pound was a touch softer against the euro with the single currency buying 87.84 pence.
"The euro area and Britain's economies are being hit by the same forces. Inflation is not coming down sufficiently and they're both energy importers," Danske Bank's Kundby-Nielsen said.
"Euro-sterling (EUR/GBP) should stay rangebound given that we don't really see diverging factors in monetary policy and the growth outlook."
Meanwhile, British retailers reported a boost in spending from Mother's Day purchases in March, during an otherwise downbeat sales period when cost of living pressures and unusually wet weather kept shoppers at home.