Sterling rose versus the dollar on Friday as some investors who sold the previous day when the Bank of England announced another round of quantitative easing took profits on those positions, but overall sentiment remained fragile.
The pound was last up 0.6 percent at $1.5531 , erasing losses from Thursday when it dived to $1.5270, its lowest level since July 2010.
Traders said a European investment bank and UK clearer were seen buying, pushing sterling through stops above yesterday's high of $1.5502.
The UK currency shrugged off a Moody's rating cut of 12 UK financial institutions. Traders said the reaction in sterling was limited because the downgrades had not been as severe as some market players expected.
"This is primarily a positioning-driven move, the market was very short sterling," said George Saravelos, G10 FX strategist at Deutsche Bank. "But I don't think the medium-term bearish picture for sterling has changed, we expect it to weaken as QE takes place."
The BoE's addition of 75 billion pounds to its 200 billion asset purchase programme highlights the precarious state of Britain's economy as global growth slows, government spending cuts and tax hikes bite and consumers face high inflation and slow wage rises.
Asset purchasing is seen as negative for the pound because the market is flooded with the currency, stifling demand.
After the European Central Bank kept rates on hold at their policy meeting on Thursday, the UK leads other developed countries in the latest round of injecting funds into the market while keeping rates historically low.
But some analysts said by introducing QE in October rather than November as many in the market had anticipated the BoE could be seen as taking more decisive steps to tackle slowing growth.
"In this climate there is scope for sterling to outperform the euro. The BoE has acted sooner than the market was expecting while the ECB only did what was required of them. The BoE has perhaps got ahead of the curve," said Jane Foley, currency strategist at Rabobank.
The euro fell 0.5 percent against the pound , trading at 86.54 pence after jumping to a high of 87.35 pence after the QE announcement on Thursday.
Investors are now focused on U.S. non-farm payrolls data at 1230 GMT to gauge the resilience on growth in the world's largest economy. A stronger-than-expected payrolls number could boost riskier currencies, including sterling.
read more: Olympus Wealth Management
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