LONDON: Sterling reached a one-month high against a weakening US dollar on Thursday, with investors awaiting guidance on interest rates and prospects from the Bank of England later in the day.
The Monetary Policy Committee of the BoE ends its two-day meeting on Thursday and is widely expected to hold interest rates at record lows. It will also release the minutes of the meeting and its latest economic forecasts at 1200 GMT.
Governor Mark Carney is scheduled to hold a press conference at 1230 GMT.
Economists are waiting to see if the BoE cuts growth forecasts for Britain in response to lower demand from emerging economies and other factors when it publishes the Quarterly Inflation Report.
Slower growth and subdued inflation are likely to see markets price in lower rates for longer in the UK.
"We will peruse the minutes closely for any change in language, particularly as concerns slowing wage rises and the persistently low level of inflation," said Marshall Gittler, head of investment research at FXPrimus.
He added the market would also want to know Carney's view on how the "Brexit" referendum might influence monetary policy and whether negative rates are in store for the UK after Japan's move into negative territory last week. Sterling rose 0.4 percent to $1.4654, its highest in a month.
It has now gained more than 4 percent from its seven-year low of $1.4080 on Jan. 21. The rise accelerated on Wednesday after a top Federal Reserve official tempered expectations on the pace of future US interest rate increases. Against the euro, sterling was flat at 76.10 pence.
Traders say the bounce in the pound was largely the product of a build-up of huge bets on further falls in sterling. With the currency rising in recent days, many speculators are being forced to exit those bets, leading to a squeeze.
The currency has also been helped by signs a deal will be signed with Brussels later this month that will give Prime Minister David Cameron something to fight for in a referendum on Britain's European Union membership.
Markets are speculating the vote will be held in the middle of this year, a factor that is likely to keep trading in the pound rather choppy in the coming months.
Goldman Sachs said on Thursday sterling could fall as much as 15 to 20 percent if Britain votes to leave the EU, which could alarm foreign investors and dry up the capital inflows needed to fund the current account deficit.
"An abrupt and total interruption to incoming capital flows in response to a 'Brexit' could see (sterling) decline by as much as 15-20 percent," the bank said in a client note. That would be on a trade-weighted basis, implying a potential fall in sterling against the dollar to around $1.15-1.20 from current levels and a rise in the euro to around 90-95 pence from 76 pence, it said.
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