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Sterling rose against the dollar on Friday, after Bank of England Governor Mark Carney said the next move in interest rates was likely to be upward, tempering speculation that rates could be lowered if inflation stays subdued.
"We're still in a position where our message is ... that the next move in interest rates is going to be up," Carney said during a panel discussion at a Bundesbank conference in Frankfurt.
The pound had been hit in the past week after BoE chief economist Andy Haldane said a sharp slowdown in inflation meant the bank was as likely as not to cut rates, a view that had been previously rejected by Carney.
"He (Carney) is saying the obvious but it pours cold water on (some) Monetary Policy Committee (members') attempts to convince the market that a rate cut is possible," a London based trader said.
Sterling rose 0.4 percent to a day's high of $1.4923 after the comments, compared with $1.4818 beforehand. It was also helped by a weaker dollar which was pulled down by soft fourth quarter growth data out of the US.
It was up 0.45 percent against the euro, trading at 72.98 pence per euro.
"The pound has bounced on the back of the comments from the BoE which were less dovish than expected and allowed it to bounce after the weakness we saw in the last couple of weeks," said Lee Hardman, currency economist at BTM-UFJ in London.
Several other policymakers at the BoE have left Haldane looking isolated.
On Friday, one of the deputy governors, Ben Broadbent, also played down the fall in inflation, which touched zero in February. He said Britain was unlikely to suffer from a long bout of deflation.
"(Carney) wants people in the market to be more focused on rate hikes in the future," said Craig Erlam, market analyst at Oanda, a foreign exchange brokerage.
Broadbent also said that the BoE was mindful of the strength of sterling but does not try to finesse the exchange rate.
The currency had also been weighed down by uncertainty ahead of the parliamentary election on May 7. The latest opinion polls point no party being able to form a government on its own.
"I can see more political risk priced in and that could hold it back. At the same time the BoE has signalled more concern over the strength of the pound which could dampen the pace of rate hikes ahead," said Hardman.

Copyright Reuters, 2015

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