Pound strength may prompt traders who bet sterling will decline to end their trades, sending the U.K. currency higher, RBC Capital Markets said.

"Given the weight of speculative shorts in the pound, a record as of March 23, the risk of a nastier short squeeze cannot be ruled out," Sue Trinh, a senior currency strategist in Hong Kong, wrote today in a report. "We identify pound- Canadian dollar and pound-Australian dollar shorts in particular as among the more vulnerable pound crosses should sterling continue grinding higher."

The pound slipped 0.2 percent versus the Canadian dollar, known as the loonie, and rose 0.2 percent against Australia's currency, nicknamed the Aussie, as of 8:22 a.m. in London. Sterling also gained 0.2 percent to $1.5208.

Eoin Treacy's view Sentiment towards the Pound has seldom been more bearish. Speculation about the ramifications of a potential hung parliament has taken a somewhat hysterical tone of late and there remains considerable unease about the extent of quantitative easing, government deficits, the housing market and speed of economic recovery. While the Pound has been comparatively steady against the Euro, Swiss Franc, Yen and US Dollar, it remains in consistent downtrends against Asian and commodity related currencies.

The Pound accelerated lower against the Australian Dollar, New Zealand Dollar, Canadian Dollar, Indian Rupee, Russian Ruble and Mexican Peso over the last few months and as a result, is overextended compared to the descending 200-day moving average. It is testing areas of historic support against AUD, NZD and CAD but may be completing long-term tops against INR, RUB and MXN.

Given the short-term oversold condition and proximity to historic lows, there is scope for at least a relief rally in favour of the Pound. Over the medium-term to longer terms, the Pound appears to have much more scope to weaken against the latter three emerging market currencies than against the former OECD currencies. It looks like it has already topped out against the Rupee while sustained moves below RUB40 and MXN18 would complete tops against these currencies respectively.