The pound soared yesterday after the Bank of England (BoE) took analysts by surprise with an announcement that it has increased interest rates to 5.25 per cent.

Sterling rose 0.7 per cent against the dollar to $1.9452, 0.8 per cent against the euro to €1.50813 and 1.3 per cent against the yen to ¥233.90.

Foreign exchange markets exploded in the wake of the BoE decision with State Street's currency index showing levels of trading 60 per cent above the 2006 daily average.

"There is lots of blood in the street," Firas Askari of BMO Capital Markets told Bloomberg.

"Today was a classic example of intraday volatility led off by the Bank of England. I am sure many short term traders would have been hurt."

Elsewhere, the euro slipped as the central bank dampened exchange rate speculation and the dollar rose as investors trimmed bets on an interest rate rise.