LONDON: Sterling hit a six-year high against a trade-weighted basket of currencies on Thursday as the Bank of England stood out to investors as one of the only major central banks on a path to raising interest rates.
The BoE kept rates at a record low once again on Thursday, but investors are betting it will start hiking rates at some point in 2016. Some economists suggest that those expectations have been pushed too far into the future.
That is in stark contrast to other central banks around the world, 17 of which have so far eased monetary policy in the first five weeks of the year, in what some are calling a "currency war" of competitive devaluations.
On Thursday, Denmark's central bank cut its key policy rate for the fourth time in three weeks, saying it would continue to defend the Danish crown's currency peg against the euro.
"If we look at all of the other central banks in the developed world, with the exception of the Bank of England and the Fed (US Federal Reserve), each one has recently either cut interest rates, intervened or jawboned, with the impact of weakening their currency," said Jane Foley, a senior currency strategist at Rabobank. Sterling rose 0.7 percent to a one-month high against the dollar at $1.5315, with the greenback weakened by data showing the US trade deficit widening and the dollar's recent strength appearing to suck in imports and weigh on exports.
That helped sterling to reach 89.5 against a trade-weighted basket.
Against the euro, the pound was flat at 74.75 pence , close to a seven-year low of 74.06 pence hit in January.
Sterling was also helped by an unexpected 2 percent rise in house prices in January, as well as better-than-forecast purchasing managers' surveys earlier in the week, which backed the view that demand in the British economy was holding up.
"UK housing demand should continue to be helped by an expanding economy, low mortgage rates, and lower inflation," said a spot currency trader in London.
"That is putting a bid for sterling/dollar."
British government bond prices fell for a fourth day, tracking US Treasuries lower following the release of US labour market data.
The 10-year gilt yield peaked at 1.533 percent, its highest level since Jan. 22, and was last at 1.55 percent, up around 1.5 basis points on the day.
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