Sterling has leapt to a month high against the euro and dollar after hints from Mervyn King dismissing an increase in QE in November.
The pound rose by a cent against the euro to trade at €1.1065 and over two cents against the dollar to $1.6543 following the governor of the Bank of England's speech to Scottish business organisations last night.
Mark O'Sullivan, director of dealing at foreign exchange firm, Currencies Direct says: "Sterling rallied across the board in early morning trading, albeit from extremely oversold conditions.
He warns against throwing "caution to the wind", however.
"With the November inflation report still to come, we can't safely say we have seen the last of any increase in the QE program yet."
"There is some expectation in the market that inflation will move higher in the coming months and this may force the Bank's hand to eventually raise interest rates."
In his speech, King admitted the likelihood of inflation remaining "volatile" over the coming year: "Over the next few months reflecting higher petrol prices, recent falls in sterling and the reversal of the cut in VAT."
Official figures on Friday are expected to show the UK returning to modest growth after five quarters of recession.
However King was cautious: "We should be under no illusion that the path to a sustained recovery will be smooth and painless."
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