LONDON: Sterling reversed some of its gains against the dollar on Thursday after posting its biggest rise in 5 1/2 years on Wednesday when the Federal Reserve gave a statement on interest rates that was more cautious than expected.
The Fed removed a reference to being "patient" about raising rates from the statement it issued after its policy meeting. But it also lowered its forecasts for economic growth and inflation and reduced its interest rate trajectory.
The pound fell as low as $1.4795 in early European trading, after rising 1.5 percent on Wednesday to trade as high as $1.5008. By 0955 GMT it had recovered slightly to $1.4899, still down half a percent on the day.
Against the euro, the pound gained over 1 percent to trade at 71.715 pence. That left it close to the seven-year high of 70.145 pence it reached last week as the European Central Bank started a 1.1 trillion-euro bond-buying programme.
"ECB policy is pushing down European yields, which has papered over pre-election jitters in Britain," said Jane Foley, senior currency strategist at Rabobank in London. "We will see it affecting sterling as election day approaches, however."
Britain is holding parliamentary elections in May and the latest opinion polls point to a hung parliament, in which no party can form a government on its own.
"Another reason sterling was sold off ... was weak wage data and Bank of England minutes which were dovish insofar as they mentioned that sterling strength could potentially impact interest rates," Foley said.
In minutes from its latest monetary policy meeting, the BoE noted that a strengthening pound could reduce inflation. That led investors to push back their expectations of when interest rates would rise to the second quarter of next year.
Some traders said they expected sterling to remain weak against the dollar after markets had digested the surprisingly dovish message from the Fed.
"Cable (sterling/dollar) opened downbeat in London, suggesting the dollar weakness has been a flash in the pan," said Ipek Ozkardeskaya, market analyst at Swissquote. "We do not expect sustained follow up to upside attempt."
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