Sterling is likely to maintain a stronger tone in the short term with further speculation over a November interest rate increase. GBP/USD will, however, be vulnerable to at least a limited correction after very rapid gains during the past 36 hours.
Sterling maintained a firm tone late in US trading on Thursday with a sustained shift in sentiment following the Bank of England policy statement.
The US currency was also unable to hold an advance against European currencies with EUR/USD moving back to the 1.1900 area after having found support just below 1.1850.
The weaker US tone provided additional fuel for the GBP/USD rally with a move above the 1.3400 level for fresh 12-month highs.
Sterling maintained a firm tone in early Europe on Friday with consolidation around the 1.3400 area.
In a speech on Friday, Bank of England Monetary Policy Committee member Vlieghe stated that his opinion had changed given recent evidence on the economy.
The resilience in consumer spending, a move higher in wages growth and diminishing slack in the economy suggested that the time was approaching to raise interest rates.
This was a significant shift given that Vlieghe has been very much on the dovish end of the MPC spectrum over the past year.
There was, therefore, further speculation that interest rates could be increased at the November meeting and the UK currency pushed sharply higher once again.
The UK currency also gained some support from increased confidence in the global growth outlook.
With EUR/USD also gaining ground, GBP/USD surged to highs above 1.3550, the strongest level since immediately after the June 2016 EU referendum result.
There was further stop-loss buying ahead of the US open with GBP/USD breaking above the 1.3600 level.
There will be further choppy trading following the latest US retail sales data and wider position adjustment will also be an important feature later in New York trading.
GBP/USD 4-Hour Chart