The pound traded higher following the fifth consecutive letter from BOE Governor Mervyn King to the Chancellor of the Exchequer on why inflation is higher than expected. King's comments highlighted the uncertainty surrounding future British inflation levels that have been primarily driven by rising commodity prices and an increase in UK VAT. The letter also highlighted the view of higher inflation above targets forecasted by the BOE.
In light of the letter, traders bid the pound higher on expectations of an interest rate increase by the BOE in the near term.
The GBP/JPY added 1.3% in value and closed higher at 135.46 from 133.51 while GBP/USD rallied to a closing price of 1.6140 after opening the day at 1.6044.
Traders will once again be focusing on comments by BOE Governor King in the morning.
The move higher by the Cable was enough to breach above the declining wedge pattern that has held the GBP/USD in check since failing to breach the 1.6280. Judging from the consolidation pattern, an estimate following the breach should target this previous resistance level.