LONDON (Reuters) – Sterling strengthened as the Bank of England kept interest rates on hold on Thursday, defying money markets which had been pricing a 50% chance of a rate cut to boost the economy.

Much of the gain in the pound came shortly before the BoE announcement. The currency then extended its run to as high as $1.3095 GBP=D3, before easing a touch to $1.3061, up 0.4% on the day.

Versus the euro the pound strengthened to as high as 84.215 pence EURGBP=D3 before trading at 84.38, up 0.2%.

Money markets slashed expectations for a rate cut in March and now see a 16% probability rates will be lowered from the current 0.75% at the next meeting. They had priced an 80% chance before the BoE announcement

UK gilt futures fell while the export-heavy FTSE 100 .FTSE extended its losses.

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