British pound on course for a sterling performance
For a currency that's taken quite a beating in recent years, things couldn't look better for sterling.
The British currency soared against the U.S. dollar and the euro on Wednesday after the Bank of England (BoE) delivered a surprisingly upbeat economic outlook. And currency analysts forecast further gains as markets position for higher interest rates from the U.K.
"We're already pricing in a lot of potential hiking from the Bank of England," Sebastien Galy, senior currency strategist at Societe Generale told CNBC's Asia Squawk Box.
"Some of the growth is slightly unhealthy, but a lot of the pessimism that was there in the U.K. many months ago has reverted so people are bullish," he added.
BoE chief Mark Carney on Wednesday unveiled the "next phase" of forward guidance and adopted a less dovish tone than markets had expected. The central bank revised up its 2014 growth forecast to 3.4 percent from 2.8 percent and suggested that interest rates could start to rise from record lows in just over a year.
That set the backdrop for stellar currency gains.
The sterling, also known as the pound, jumped almost one percent against the dollar on Wednesday and extended those gains on Thursday to $1.6623, its highest level in just over two weeks. Against the euro, sterling climbed to a three-week high of 0.8176.
Indeed, the outlook for the currency is much brighter than it was in the wake of global financial crisis when concerns about weak economic growth battered it in early 2009 to its lowest level in more than 20 years against the dollar.
(Read more: Exports and investment to boost UK recovery)
Sterling six-month chart versus US dollar
"After breaking down hard and fast in 2008, sterling/dollar has tended to trade in the lower half of its 2007/2009 range," Greg Gibbs, senior currency strategist at RBS, said in a note. "In light of recent developments, the market could feel it more appropriate for sterling/dollar to climb towards the middle of that range, which might be as high as 1.8000."
Other analysts said sterling appeared to be on track for gains to $1.70, implying a gain of just over 2 percent from current levels.
"Further gains are likely and we forecast cable [sterling/dollar] will move above $1.70 in coming weeks and months," ANZ Bank said in a note.
Kathy Lien, managing director at BK Asset Management in New York, said a move to $1.70 was unlikely to be smooth sailing however, with tough technical resistance at $1.6668 and $1.6750.
Other analysts added that since sterling has already climbed over 10 percent against the dollar since July last year, the pound could make greater headway against the euro.
"Against the euro, things are more interesting for sterling," said Societe Generale's Galy.
"That's because on the one side you have some potential tightening in the U.K. and on the other side you have the ECB [European Central Bank] that is trying to push an agenda of easing. So there's clearly a divergence between the two and that is clearly still exploitable," he added.
Indeed, ECB Executive Board member Benoit Coeure was quoted on Wednesday as saying the idea of cutting into negative territory the rate the central bank pays banks to hold their deposits overnight was "a very possible option."
-By CNBC's Dhara Ranasinghe. Follow her on Twitter at @DharaCNBC