Despite meagre trading on Friday, the pound remains on track for its biggest monthly gain in four months of 3%, and a 2.4% quarterly gain.
"The pound is set to be the best-performing currency of the first quarter of 2023, having gained 2.5% against the dollar", wrote Francesco Pesole, FX strategist at ING in a note.
"Along with the improvement in the economic outlook, sterling is definitely drawing benefits from the market's conviction that the Bank of England will need to continue raising rates."
Data on Friday showed gross domestic product (GDP) increased by 0.1% between October and December after a preliminary estimate of no growth. Household finances were boosted by state energy bill subsidies but investment by businesses fell.
British house prices also slid in March at the fastest annual rate since the financial crisis, mortgage lender Nationwide said on Friday.
High inflation and worries about weak growth are still weighing on the pound, which was down 0.10% at $1.23740 by 1124 GMT. The pound meanwhile ticked up slightly against the euro to 87.97 pence.
Data last week showed British inflation unexpectedly rose to 10.4% - over five times the Bank of England's target rate of 2% and the highest among the Group of Seven rich nations.
Even so, the pound is set to end the month 3% higher against the dollar, erasing February's 2.4% drop.
The BoE raised interest rates last week for the 11th time in a row. Markets are pricing in a 60% chance of a further 25 bp hike from the central bank in May, and a 40% chance of no change.
(Reporting by Lucy Raitano; Editing by Kirsten Donovan)
By Lucy Raitano
