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Sterling nears 5-year high – time to sell?

The U.K.'s pound roared higher late on Thursday evening as Mark Carney, the governor of the Bank of England (BoE), surprised markets by hinting that interest rates in the country could begin to move higher earlier than expected.

And with sterling trading close to the $1.70 level, a near 5-year high, on Friday morning, currency strategists are almost unanimous in expecting downward pressure in the near term.

"(It) looks hard to sustain," Geoffrey Yu, a forex strategist at UBS told CNBC via email on Friday. Kit Juckes, global head of foreign exchange strategy at Societe Generale agreed, writing in a research note that this level for sterling is "pretty much the top" and will be "sorely tested." HSBC's David Bloom hasn't changed his long-term view on the currency, suggesting that the U.K.'s poor fundamentals and current account deficit would see sterling crumble in the medium term.

But there was one contrarian call, Eimear Daly, the head of market analysis at Monex Europe, told CNBC via email that "the only way is up for the pound" with the Bank of England emerging as the first leading central bank to hike rates.

Read MoreBoE's Carney: Rates could rise sooner than expected

"We are expecting sterling-dollar to break $1.70 during the summer," she said.

As Carney addressed an audience at the annual Mansion House speech in London on Thursday evening, it took just one simple sentence to send market participants into frantic buying. Upstaging the U.K.'s finance minister who had his own important issues to address, Carney said that there's already great speculation about the exact timing of the first rate hike in the U.K. and that this decision is becoming more balanced.

"It could happen sooner than markets currently expect," he said, sending sterling to $1.6883 from $1.6833 in a matter of seconds.

Read MoreUK's Osborne says must be alert to housing debt

Peter Macdiarmid | Getty Images

The buying continued overnight and hit $1.6990 by 8:00 a.m. London time on Friday morning. A rate hike is seen as a very bullish sign that an economy's recovery is gathering steam and sterling would be seen as a beneficial currency to hold with potentially a higher yield on the horizon.

Carney's words were in complete contrast to the more dovish stance that he has filtered through to markets in recent months. Analysts predict that this change in tactics could be pre-empting a dissenting member of the Bank of England's monetary policy committee (MPC), who may have been calling for a rate hike. The minutes to the last meeting of the central bank are due next week and could shine a light on this possibility.

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"The worm has turned," Bloom said. "Is he gaming us? It's a tough call on this one."

Instead of focusing on the dollar/sterling cross, strategists told CNBC that there was a more interesting move happening with the euro against the pound. The euro sharply depreciated to below 0.80 against sterling on Thursday evening - to levels not seen since November 2012 - and many are expecting this trade to gain traction.

"I think EURGBP will continue to fall from current levels," Yu said. Juckes agreed, saying that shorting the euro against sterling is the "more appealing trade" due to the apparent divergence between the European Central Bank and the BoE.

Simon Smith, the head of research at FxPro said in a Friday note that this currency cross could be the focus for macro players during the second half of 2014 but warned that the downtrend has been established since April and "a fair deal has already been priced in."

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