Sterling hit a four-month high against a basket of currencies on Thursday, extending gains made the previous day after Bank of England minutes suggested that interest rates will rise in July, rather than August.
BoE minutes showed that four of the nine Monetary Policy Committee members - including Governor Mervyn King - had voted for a rate hike this month. This wrong-footed investors who had expected only two dissenters against the decision to make no change.
King, speaking late on Wednesday, said there was room for differences on the committee, but every member was determined to bring inflation back to target and keep it there.
"The domestic outlook for sterling is a positive one, I think the BoE will have at least one more interest rate hike," said Marios Maratheftis, foreign exchange strategist at Standard Chartered. On a trade-weighted basis, which measures sterling's value against a basket of currencies, the pound rose to a four-month high of 104.9.
Sterling also hit a four month high versus the euro at 67.13 pence, and a new 15-year high versus the low-yielding Japanese yen, at 246.61 yen. It was steady at $1.9922 by 1441 GMT, still some way below 26-year peaks above the $2-mark scaled in April. A Reuters poll of 64 economists, carried out after the minutes, showed the majority betting on a July hike. Earlier this month, most had said the BoE would wait until August.
The median chance of rates reaching 6 percent by the end of the year increased to 40 percent from 30 three weeks ago. Sterling showed little reaction to a Confederation of British Industry survey showing that manufacturers' order books grew faster than expected this month, matching March's 12-year high, although firms expected to raise prices at a slightly slower rate than last month.
Friday features BoE consumer credit data for May, final first quarter gross domestic product numbers and GfK consumer confidence gauge for June.
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