LONDON: Comments by Bank of England policymakers slowed sterling's recent bullish run on Tuesday, offering no sign of support for a rise in official interest rates this year and a relatively sanguine message on price pressures in the economy.
The pound dropped around a third of a percent against both the dollar and euro in the first 30 minutes of testimony in parliament by Governor Mark Carney and three colleagues.
It regained a foothold thereafter but the message from Carney, his deputy Charlie Bean and monetary policy committee member David Miles that there was still spare capacity in the UK economy sounded less hawkish to some than the bank's minutes last week.
Bean also said the balance of risks between encouraging productivity and risking higher inflation pointed to a later rather than earlier withdrawal of stimulus from the economy.
"Markets are taking profit on hawkish BoE bets as the hearing progresses," said Valentin Marinov, a strategist with Citi in London.
"The Bean comments in particular suggested that the views at the MPC on the economy are not as constructive and far from unanimous. All that could mean than an early rate hike may not be a done deal as yet."
The pound fell to a session low of $1.6973, while the euro rose as high as 80.25 pence.
The December short sterling future rose 2-3 ticks to 98.15, before retreating. It still prices in a substantial chance of a rise in rates by the end of the year.
Sterling has bounced around over the past month on a series of differing messages from the bank. Its latest inflation report, and Carney's accompanying press conference was taken as evidence that the bank was minded to hold off as long as possible before raising borrowing costs.
The Governor's annual Mansion House speech overturned those bets and led many to expect the bank was moving towards tightening this year.
"The risk we saw this morning was that Carney would try and talk the pound back down and that seems to be happening," said one London-based foreign exchange trader during the testimony.
The most recent data on positioning show long positions in sterling - essentially bets it will rise - are at their most extended since 2007, a sign of strength but also a signal that any squeeze on those positions could quickly send the pound lower.
Others in the market said there was still plenty of demand for sterling, its 10-percent gain making it one of the few clear success stories on major currency markets over the past year. Once the pound fell below $1.70 there was swiftly interest to buy, they said.
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