Sterling climbed to a six-week high against the euro on Wednesday after the Bank of England raised its inflation forecasts, leading markets to bring forward the possible timing of an interest rate hike. A broadly weaker euro fell over 1 percent on the day to 86.84 pence, its lowest since March 24, with the single currency hurt by uncertainty about further aid for indebted eurozone members.
Against the dollar, sterling rose almost 1 percent to $1.6518, its highest in a week, before running into good offers which knocked it back down to $1.6454 in afternoon trade. Lloyds analysts had earlier issued a buy recommendation on sterling/dollar with an initial target of $1.6728. They highlighted the pound holding above trend support around $1.6290.
"New short-term buy signals now suggest that this support may hold by the weekend, which would increase the risk that the medium-term uptrend will resume to fresh highs," they said. In its report, the BoE said medium-term inflation could rise to just under 2 percent and also raised its short-term inflation outlook.
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