The dollar fell against most major currencies on Wednesday, led by a sharp rebound in sterling after minutes from the Bank of England's rates meeting showed policymakers were unanimous in voting for this month's interest rate hike.
Earlier, the dollar hit six-week highs against the euro and three-month highs against the low-yielding yen, but the pound's strong rebound after the minutes lifted European currencies. The BoE minutes showed that all nine members of its Monetary Policy Committee voted for the quarter-point rate hike - and some even mulled the prospect of an unprecedented 50-basis point increase - contrary to forecasts which indicated one member would vote against a hike.
"The euro was dragged up as investors sold the dollar after the minutes came out," said Steven Pearson chief currency strategist at Halifax Bank of Scotland. At 1205 GMT sterling was up 0.6 percent on the day against the dollar at $1.9856, bouncing back well over a cent following the BoE minutes. The euro was up 0.3 percent at $1.3486, having hit a six-week low of $1.3416 earlier in the session, while the dollar index was down at 82.1, having earlier hit a six-week high of 82.603.
The dollar was flat against the yen at 121.50 yen, having easing back from a three-month high of 121.87 yen reached earlier. Market pricing of more aggressive BoE tightening in the months ahead lifted the pound and helped boost global rate hike expectations.
"We expect that there will be weaker news on (UK) growth and inflation between now and August and we note some similarities between with the last tightening cycle in this regard. But the risks to rates relative to our forecast are clearly to the upside in the near term," wrote Goldman Sachs' UK economists in a note to clients.
UK, eurozone and US bond yields rose, with European yields hitting fresh multi-year highs, in part supported by data that showed a surprisingly strong surge in eurozone industrial orders in March.
The dollar's decline wiped out its earlier strength earlier in the day. The greenback had benefited from the backdrop of buoyant world stock markets as risk-seeking investors financed these trades in low-yielding currencies like the yen.
Earlier, comments by Richmond Federal Reserve Bank President Jeffrey Lacker on Tuesday, combined with recent upbeat US data, prompted investors to scale back expectations for the central bank to lower its fed funds rate from 5.25 percent.
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