LONDON: Sterling rose from 14-month lows against the dollar on Wednesday after Bank of England minutes showed that two policymakers supporting an increase in interest rates were sticking to their guns despite a softening economic outlook.
There had been some market speculation about a generally more dovish tone and that either Ian McCafferty or Martin Weale would reverse their support for an immediate hike in rates. However, the minutes said there had been a "material spread of views" on the Monetary Policy Committee.
"This is the key line for us," said Paul Robson, a strategist at RBS in London.
"Perhaps the market was prepared for the majority to be very set in the view that the outlook was weaker. That is not the case and so we have had a bit of position-squaring on some of the sterling shorts."
Sterling recovered from a low of $1.5590 hit just before the data, gaining half a cent to $1.5648, up 0.1 percent on the day. It strengthened to 80.10 pence per euro from 80.37 before the data.
"Short" bets on the currency falling further have begun to dominate the outlook for the pound, according to the most recent data on market positioning, a reflection of a full-scale retreat in expectations of when interest rates will rise.
Money market rates have pushed out expectations for a first rise well into the second half of next year, with forward rate markets and short sterling only fully pricing in a 25 basis point move in the final quarter.
"That broad picture has not changed: from being set to be one of the first to raise interest rates, the BoE is now firmly back in the pack," said Robson. "Once we get some of these positions flushed out, sterling should continue to weaken."
Gilt futures also pared gains after the publishing of the minutes, dipping to 116.52 from around 116.73 prior to the data. They were still up 7 ticks on the day.
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