LONDON: Sterling jumped after the Bank of England's Inflation Report on Thursday, while Sweden's surprise decision to launch stimulus and cut interest rates below zero sent the crown to a six-year low against the dollar.
The Bank of England brought forward its forecasts for when inflation would reach its target of 2 percent, saying it expects stronger growth on the back of lower oil prices, and predicted that UK wages would rise at a faster pace.
It also said it sees little need to raise interest rates this year and could even cut them if inflation proves weaker than expected. But markets interpreted the report, and the comments by Governor Mark Carney afterwards, as keeping on track their bets on an early 2016 rise in interest rates.
Sterling rose 0.8 percent against the euro to hit a seven-year high of 73.715s pence. Against the dollar, the pound rose 0.9 percent to trade at $1.5366, its strongest in five weeks.
That helped the trade-weighted sterling index reach a six-year high of 90.3.
"Rate expectations had fallen sufficiently far that it was going to be hard not to have something that was at least marginally positive for sterling," said Kit Juckes, a macro strategist at Societe Generale in London.
"I'm not sure that there's anything so surprising in any of this that you ought to have sterling go very far on it."
Juckes added that many central banks were in a "race to the bottom" in their interest rate-setting, and that Sweden's move would put pressure on the Danish and Norwegian central banks to ease policy further.
Sweden's Riksbank cut its key repo rate into negative territory and said it would soon make purchases of government bonds with maturities from 1 year up to around 5 years for a sum of 10 billion Swedish crowns.
Its move prompted speculation that Denmark's central bank will cut its interest rates further into negative territory at 1500 GMT.
The Swedish crown fell by as much 2 percent against the dollar to hit 8.5512 crowns, its weakest since April 2009, before recovering a little to 8.4751 to the dollar, still down around 1 percent on the day.
Against the euro, the crown hit a two-month low of 9.6894 .
"Clearly they've been more aggressive than expected," said Adam Cole, global head of FX strategy at RBC Capital Markets in London. "It leaves both the threat of more QE and the threat of more rate cuts open..., so it's hard to be constructive on the currency."
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