Sterling got a lift on Wednesday after minutes from the Bank of England's policy meeting this month showed two policymakers voted for an interest rate hike, although worries about economic growth checked gains. The minutes showed BoE Monetary Policy Committee (MPC) member Martin Weale unexpectedly joined Andrew Sentance in voting for a quarter-point rate rise. That prompted investors to price in the rising likelihood of a rate increase in coming months.
Sterling was up 0.4 percent on the day against the dollar at $1.5888, having risen to a session high of $1.5901. The pound recovered from a trough of $1.5750 hit on Tuesday, with traders also citing steady buying by Asian central banks. The pound rallied against the euro, knocking the single currency roughly half a percent lower to 85.96 pence.
The euro retreated from a 2-1/2 month high of 86.72 pence hit before the minutes were announced. That move had pushed sterling's trade-weighted index to 79.7, its lowest since late December, before rebounding to 80.1 in late London trade. Implied sterling/dollar volatilities were holding firm with the one-month trading around 10.1 percent compared to 9.80 percent at the start of the week. The one-month risk reversals were at 0.8 percent in favour of sterling puts, pointing to greater downside risk for the pound.
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