Sterling strengthened on Tuesday after it emerged that the Bank of England may not be planning to lower the interest rate it pays on commercial banks' reserves any time soon, a move that would have effectively loosened monetary policy further.
The thinking of BoE policymakers, according to economists present at the meeting, together with Confederation of British Industry data that showed a surprise rise in retail sales caught out a market that was positioned for more sterling weakness.
Economists at the BoE seminar also indicated the Bank was unhappy with the way the currency market reacted to Governor Mervyn King's remarks last week on the benefits of a weaker pound to the fragile economy. "The comments are clearly aimed to lift money market rates and provide support for sterling," but do not necessarily mean the BoE is done with measures to increase liquidity and improve broader financing conditions, said Lena Komileva, director and head of G7 market economics at Tullett Prebon in London.
At 1430 GMT sterling was up 0.4 percent on the day against the dollar at $1.5950, up more than a cent from an intraday low of $1.5926 and hitting as high as $1.5989, according to Reuters data. The euro was down 0.8 percent on the day at 91.25 pence Sterling had dipped below $1.58 earlier this week for the first time in more than four months, and the euro scaled 93 pence for the first time in six months.
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