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Sterling hits December Highs after BoE Raises Interest Rates

Dec 16 (Reuters) - Sterling rose on Thursday after the Bank of England hiked its key interest rate by 15 basis points and before the outcome of a meeting of the European Central Bank, which analysts expect will be more dovish.

Investors recently took the view that the rapid rise in infections from the Omicron variant of coronavirus would have forced the BoE to adopt a cautious stance despite recent robust economic data and high inflation.

The Bank of England raised its main interest rate to 0.25% on Thursday as inflation pressures mounted in Britain, becoming the first major central bank in the world to raise borrowing costs since the coronavirus pandemic hit last year.

The European Central Bank is all but certain to dial back stimulus one more notch later on Thursday, while pledging to keep borrowing costs exceptionally low. 

Sterling was up around 0.7% against the dollar and the euro, hitting its highest levels since the end of November at 84.54 pence and $1.3368 .

Several analysts had flagged that BoE could allocate more significance to the pandemic at its policy meeting.

Hospitalisation rates are rising in some areas in Britain as the Omicron variant sparks a wave of new infections, England's top health official said on Wednesday, warning that the number of cases would break records in the next few weeks.

Political risks continue to weigh on sentiment as Prime Minister Boris Johnson faces turmoil in his Conservative Party over measures to curb the outbreak's spread and a public outcry over alleged parties at his Downing Street office during last year's lockdowns.

Johnson's government sought to play down the biggest rebellion yet from his own party's lawmakers on Tuesday, with one minister saying it was not surprising that there were different views over pandemic restrictions.

Reporting by Stefano Rebaudo; Editing by Hugh Lawson

Source: Reuters

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