Sterling rises on UK inflation forecasts
The British pound rose and UK government bonds fell after the Bank of England said inflation, while easing now, would breach its target in three years.
It's been seen as a signal that interest rates may rise faster than investors anticipate.
Sterling gained versus all of its 16 major peers and approached the strongest level in seven years versus the euro.
The bank said in its quarterly report yesterday that while inflation might drop below zero in the coming months, it would accelerate to 2pc in two years and to 2.2pc at the end of its three-year forecast period.
The Bank of England, led by Governor Mark Carney, also raised its growth outlook for 2016 and 2017.
"On balance, this is positive for sterling," said Josh O'Byrne, a foreign-exchange strategist at Citigroup in London.
"Before the meeting, I was worried that Mark Carney might talk down sterling. That he has not and focuses on growth I view as supportive."
The pound appreciated by 0.6pc to 73.95 pence per euro by midday in London yesterday after touching a high of 73.85 pence to the euro on Wednesday, the strongest level since January 2008.
Against the dollar, sterling also advanced by 0.7pc to $1.5339.
The yield, or return, on 10-year gilts rose four basis points, or 0.04pc point, to 1.72pc and touched 1.75pc, the highest level since January 5. The 2.75pc bond due in September 2024 fell 0.385, or 3.85 pounds per 1,000-pound face amount, to 109.085.
Sterling has advanced 2.1pc this year so far versus a basket of developed-nation peers tracked by Bloomberg Correlation- Weighted Indexes. The euro fell 3.3pc, while the dollar climbed 3.9pc.