The pound retreated from its early highs against its key counterparts in the European session on Thursday, after the Bank of England left its key interest rate unchanged following a hike last month to contain surging inflation.

The Monetary Policy Committee, headed by Governor Mark Carney, unanimously decided to maintain the benchmark rate at 0.50 percent. The bank had raised its rate by a quarter point at the previous session in November.

Policymakers voted unanimously to maintain the quantitative easing at GBP 435 billion.

The bank said the MPC judged that inflation is likely to be close to its peak, and will decline towards the 2 percent target in the medium term.

The governor will be writing an open letter to the Chancellor to explain last month's inflation overshoot and this will be published alongside the minutes of the February MPC meeting and the accompanying Inflation Report.

In economic front, figures from the Office for National Statistics showed that UK retail sales grew the most in seven months in November.

Retail sales volume climbed 1.1 percent on a monthly basis in November, with strong contribution from households goods stores. This was the biggest increase since April, when sales advanced 1.9 percent.

The pound rose against its major rivals in the Asian session amid rising risk appetite, as the U.S. Federal Reserve raised its benchmark interest rate by a quarter point as widely expected, and struck a dovish tone on future rate hikes amid stubbornly low inflation.

Following a 3-day high of 0.8780 hit at 4:30 am ET, the pound reversed direction and eased to 0.8819 versus the euro. Continuation of the pound's downtrend may see it challenging support around the 0.90 region.

Flash survey data from IHS Markit showed that Eurozone private sector activity expanded at the fastest pace in nearly seven years in December.

The headline composite output index climbed to an 82-month high of 58.0 in December from 57.5 in November. Meanwhile, the index was expected to fall to 57.2.

The pound pulled away from an early 6-day high of 1.3465 against the greenback, with the pair trading at 1.3422. If the pound drops further, 1.33 is likely seen as its next support level.

The pound retreated to 1.3239 against the Swiss franc, from a 3-day high of 1.3299 hit at 4:30 am ET. On the downside, 1.31 is likely seen as its next support level.

The Swiss National Bank maintained its expansionary monetary policy stance, saying it will remain active in the foreign exchange market as necessary although the currency weakened against the euro and the US dollar.

The interest rate on sight deposits at the SNB was retained at -0.75 percent and the target range for the three-month Libor was kept unchanged between -1.25 percent and -0.25 percent, the bank said in a statement.

The U.K. currency eased to 151.12 against the Japanese yen, from a 3-day high of 151.88 hit at 4:30 am ET. The pound is seen finding support around the 150.00 area.

Data from the Ministry of Economy, Trade and Industry showed that Japan's industrial production rebounded as initially estimated in October.

Industrial production rose a seasonally adjusted 0.5 percent month-over-month in October, reversing a 1.0 percent decline in September. That was in line with the flash data published on November 29.

Looking ahead, at 7:45 am ET, the European Central Bank announces its rate decision. The main refi rate is expected to be retained at a record low zero percent and the deposit rate at -0.40 percent.

In the New York session, Canada new housing price index for October, U.S. weekly jobless claims for the week ended December 9, business inventories for October, retail sales and import and export prices for November are slated for release.

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