Sterling slid to a four month low against the dollar and fell on the euro on Wednesday as less hawkish minutes from the Bank of England's policy meeting cooled expectations for aggressive rate rises.
Minutes showed Monetary Policy Committee members voted 8-1 to leave rates unchanged at four percent at the April 7-8 meeting. Markets were expecting members voted 6-3 for steady rates.
Members noted the continuing strength of the exchange rate, which offset the inflationary impact of strong house price growth.
"Minutes were dovish and a perceived risk of inflation has shifted. Interest rate attractiveness for sterling is diminishing," said Mary Davis, senior currency strategist at CSFB.
Sterling fell to $1.7658, down more than one percent on the day.
It trimmed losses to $1.7756 by 1503 GMT after comments by Federal Reserve Chairman Alan Greenspan gave the market no greater insight as to when the Fed might move to hike rates.
Earlier sterling came under pressure as the dollar firmed across the board on hawkish comments on Tuesday by Greenspan. Against the euro it stood at 66.90, down two thirds of a percent on the day.
Sterling's trade-weighted index, which has a euro weighting of 64.82 percent, a dollar weighting of 16.49 percent and a yen one of 7.0 percent, fell to a three-week low. The index has fallen nearly two percent since the MPC meeting this month.
Minutes also showed, however, that most of the MPC argued that with the economy still growing above trend and with little capacity, it would be appropriate to raise interest rates "in due course".
"Despite the vote, I think the minutes still indicated that further rate hikes are needed to slow the economy, but their gradual approach hasn't really changed," said Joachim Fels, economist at Morgan Stanley.
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