Sterling rose to fresh 26-year highs against the dollar on Thursday after the Bank of England left interest rates unchanged at 5.75 percent, disappointing minority expectations for a cut.
"Some people had run away with the idea of a cut. The market started to price that in, but then we came out the other side and got a bit of relief," said Gavin Friend, head of FX strategy at Commerzbank Corporates & Markets. Sterling's rally versus the dollar gathered pace after US Federal Reserve Chairman Ben Bernanke said he sees US growth remaining sluggish, suggesting more Fed rate cuts may be in the pipeline.
Sterling rose as high as $2.1117, the first time it's been above $2.11 for the first time since 1981. The euro was steady at 69.59 pence, showing little reaction to the European Central Bank's expected decision to leave interest rates on hold and maintain a hawkish tone while describing recent currency moves as sharp and abrupt. Sterling climbed 0.25 percent to 237.68 yen.
Some economists believe the BoE will need to administer a growth-boosting rate cut before too long, which is why sterling has under-performed the euro in recent sessions.
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