LONDON: Sterling fell on Wednesday, hovering near a four-month low against the euro on selling by macro funds that positioned for more weakness ahead of Bank of England policy minutes.
The minutes of the Monetary Policy Committee's July 3-4 meeting are due at 0830 GMT, with particular attention on whether new Governor Mark Carney voted in favour of increasing the BoE's 375 billion pounds of asset purchases.
The bank kept its stimulus programme on hold and interest rates at a record low at the meeting. But it surprised markets by calling a recent rise in UK bond yields unwarranted.
That led to a sharp selloff, with sterling dropping to a three-year low against the dollar and a four-month trough versus the euro. While it has recovered against the dollar, it is still struggling against the euro with little respite seen.
The euro was up 0.2 percent at 87.02 pence, having hit 87.075 pence on Tuesday, its highest since mid-March. Investors buying the euro and selling sterling are now targeting its March 12 high of 87.93 pence.
Against the dollar, sterling was down 0.4 percent at $1.5090, having fallen as low as $1.5045 on Tuesday after British inflation rose less than expected in June.
Investors are wary of taking fresh positions in the dollar before Federal Reserve chief Ben Bernanke's testimony later in the day, so any bearish bets against sterling are likely to be placed against the euro, traders said.
"We are expecting a dovish set of minutes and that should take euro/sterling even higher," said John Hardy, currency strategist at Saxo Bank.
Analysts said the minutes would be a step towards the BoE preparing markets for a pledge to keep rates low until the economy recovers. The bank is widely expected to issue that guidance in its Quarterly Inflation Report early next month.
UK labour market data will be released at the same time as the minutes. Forecasts are for a further improvement in the labour market but any bounce in the pound will be sold into, traders said.
"We have found that positive UK economic data surprises are currently not generating sustained sterling support," Morgan Stanley said in a morning note.
Dovish BoE minutes could also see short sterling strips <0#FSS:> rally more across the curve and weigh further on the pound, traders said.
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