Sterling fell to a two-month low against the euro on Wednesday after Bank of England minutes unexpectedly showed two policymakers voted for an even bigger increase in quantitative easing than the bank implemented this month. The BoE's David Miles and Adam Posen voted to pump an extra 75 billion pounds into the economy instead of 50 billion, increasing the possibility that the central bank will opt for more easing later in the year.
Traders said many in the market had positioned for the risk of one or two policymakers voting for no QE at all after this month's BoE inflation report predicted the economy would improve, dampening expectations of further stimulus. The surprisingly dovish minutes propelled the euro to a high of 84.57 pence, a rise of 0.75 percent on the day, topping the 2012 high of 84.09 pence, the late December high of 84.22 and potentially paving the way for a move towards 85 pence.
The euro broke firmly out of the relatively narrow range from 82.22 pence to 84.09 pence that it traded within throughout 2012 and analysts said this could give it more scope for further gains.
"Markets were wrong-footed after expectations of QE had been scaled back," said Simon Smith, economist at FXPro. The euro's next target was the 100-day moving average around 84.78 pence. It was last at 84.44 pence. Sterling's broad falls dragged the pound's trade-weighted index to a two-month low of 80.4.
Sterling also fell sharply against the dollar, losing around 0.8 percent on the day to hit $1.5648, its lowest in a week and well below an earlier high of $1.5816. This took it just shy of the mid-February low of $1.5644, which would mark its lowest in around four weeks.