LONDON: Sterling slipped against the dollar and pared losses versus the euro on Thursday after the Bank of England left rates at a record low of 0.5 percent as widely expected.
Although the decision was as forecast, analysts said some participants had positioned for the slim chance of a BoE rate hike, given that three out of the nine UK policymakers had been voting for a hike in recent months.
Markets are now bracing for an expected hike by the European Central Bank at 1145 GMT.
"The price action on sterling shows that some were just betting on the outside chance that rates were put up," said Simon Smith, chief economist at FXPro.
"I think what we're seeing is just some covering of those more speculative sterling longs that were put in place ahead of the announcement."
Against the dollar the pound was down 0.2 percent at $1.6296, having traded at around $1.6330 before the decision.
The euro was last 0.1 percent lower against the pound at 87.64 pence, compared with around 87.38 pence before the decision. It held above its 21-day moving average at 87.39 pence.
Markets were pricing in a 98 percent chance of a BoE rate hike in July. Expectations of a near-term rate hike diminished on Wednesday after weak industrial output data.
Earlier, dealers said trading was dominated by individual flows, with many investors sidelined ahead of the central bank decisions. They said corporate selling of the euro against sterling offset an earlier decent-sized order to sell sterling/dollar by a UK clearer.
The BoE's decision to hold rates makes it almost certain to lag behind the ECB in raising rates.
The ECB is widely expected to hike rates by 25 basis points from a record low of 1.0 percent when it announces its decision at 1145 GMT.
However, analysts said the risk of ECB president Jean-Claude Trichet watering down the central bank's hawkish rhetoric in his news conference at 1230 GMT may weigh on euro/sterling.
The euro stayed between this week's low of 87.14 pence and its recent five-month high of 88.53 pence.
Below this week's low would target the 86.60 area, which coincides with the 38.2 percent retracement of the euro's rise from mid-February to late March.
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