Sterling steadies against dollar, Fed eyed for rate hike clues

LONDON: Sterling steadied against the dollar on Wednesday after two days of gains as investors waited to hear whether the U.S. Federal Reserve was still on track to deliver interest rate rises soon despite a rapidly strengthening dollar.

Bank of England Chief Economist Andrew Haldane reiterated the Bank's message that it was in no rush to raise interest rates and that when hikes do come, they will be gradual - perhaps as little as a half percentage point rise each year.

That kept on track investors' expectations that the BoE will only start hiking rates from their historic lows some time well into 2016. That is a bet that has been pushed back dramatically over the past six months, dragging sterling down more than 12 percent against the greenback since last July.

Sterling was flat against the dollar at $1.5192, well clear of an 18-month low of $1.4952 touched late last week. Sterling was flat against the euro at 74.815 pence..

"Things haven't fundamentally changed," said Neil Mellor, a currency strategist at Bank of New York Mellon. "There's no real premise for the Bank to start talking in any concerted terms about tightening policy."

Mellor said the market was hesitant to run very short of dollars ahead of the Fed meeting in case it took a more cautious tone on policy tightening than previously, but added that the pound was likely to head lower after Wednesday.

Data on Tuesday showed Britain's economic growth slowed more than expected in the final three months of last year, though annual growth was still the strongest since 2007.

"We don't see the softer GDP number as a game changer for MPC (BoE Monetary Policy Committee) thinking and continue to expect the upcoming Inflation Report to be less dovish than the market thinks," wrote ING analysts in a research note.

The Fed's first two-day policy meeting of the year concludes on Wednesday. Policymakers will likely restate their "patient" approach to raising rates, while also voicing confidence that the economy will continue to pick up.

But some traders and investors are getting worried the Fed could turn more cautious in its guidance on future rate rises, given the plunge in oil prices, a rapidly strengthening dollar and a string of policy loosening steps by other major central banks to deal with global deflationary pressures.