LONDON: Sterling rebounded from four-month lows against the dollar on Wednesday after Bank of England minutes showed two policymakers voted for an interest rate hike in August, catching many investors by surprise.
Bank of England policymakers Martin Weale and Ian McCafferty both voted this month to start raising interest rates, becoming the first officials on the nine-member Monetary Policy Committee (MPC) to do so in more than three years.
Some in the market had expected only one member at most to vote for a rate rise and news that two favoured such a move prompted the market to bring forward expectations for a first UK interest rate rise to five months' time.
After last week's Quarterly Inflation Report, which was perceived to be dovish, the market had pushed back forecasts for a rate rise to March, from late 2014.
Amid higher volumes, sterling rose to $1.6680, up 0.3 percent on the day, after the minutes were released and bucked the broad dollar uptrend. It had hit a four-month trough of $1.6602 earlier in the day, its lowest since early April.
It was last trading at $1.6645, up 0.2 percent on the day.
The euro was down 0.5 percent at 79.69 pence, hitting its lowest in a week. The euro had hit a two-month high of 80.37 pence last week after the Inflation Report.
Traders said the pound was unlikely to rise much, however, especially given that inflation was well below the BoE's target of 2 percent and wages were yet to show signs of picking up, suggesting considerable slack in the British economy.
"Most MPC members found that there weren't sufficient inflation pressures to justify hiking interest rates just yet; this argument is now firmly backed by yesterday's CPI data," said Alex Edwards, head of corporate desk at UKForex.
"Most members also want to see more evidence of wage growth before raising rates, and so despite the surprise vote, yesterday's inflation data is dampening the positive impact on the pound."
Consumer prices rose 1.6 percent on the year in July, well below forecasts of a 1.8 percent reading, data showed on Tuesday. Month-on-month, the consumer price index fell 0.3 percent.
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