LONDON: Sterling rose past $1.50 to hit a five-week high against the dollar on Wednesday, after minutes from the latest Bank of England policy meeting showed policymakers were slightly more focused on the risk of inflation accelerating.
Traders said sterling was also helped by a growing view within the nine-member monetary policy committee that the next move by the BoE will be a rate hike. The minutes of the April 8-9 meeting showed that the officials voted unanimously to keep rates steady at a record low 0.5 percent, but for two members this decision remained "finely balanced".
The BoE also noted the possibility that the strength of the currency had been having a more rapid effect than expected on keeping inflation muted, implying that prices might bounce back more strongly.
Sterling hit a high of $1.5080 rising from about $1.4936 before the minutes were released. It was last trading at $1.5025, still up 0.6 percent on the day. The euro was down 0.7 percent against the pound at 71.40 pence, having hit a five-week low of 71.23 pence.
"The minutes were less dovish than expected," said Richard de Meo, managing director at Foenix Partners, a company that offers currency solutions to UK companies.
"They seem to be talking up inflation prospects. Sterling has risen above $1.50 and could stay there for a couple of days but given the election uncertainty, I wouldn't expect it to stay there for long."
Investors have been increasingly buying insurance to hedge against bouts of volatility in the currency in the weeks around the May 7 poll.
Polls show the Conservative and opposition Labour parties neck and neck, making a hung parliament likely. A strong showing by smaller parties such as the Scottish Nationalists also makes it hard to predict what kind of government will be formed.
Markets are worried that a weak administration might be unable to deal with Britain's twin deficits and are concerned about the Conservatives promise to hold a referendum on whether Britain should leave the European Union.
"I can't see a massive sustained rally with so much political uncertainty," said a spot trader. "The election concerns will keep sterling rallies limited."
Traders will now turn their focus to retail sales data due on Thursday, and more signs of robust consumer demand could underpin the pound in the short term.
"We see upside risks to tomorrow's retail sales figures, driven by favorable weather, higher real wages and otherwise positive momentum more broadly. We remain short euro/sterling," said Josh O'Byrne, currency strategist at Citi.
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