Sterling gains after hawkish BoE vote, dollar extends gains

Sterling rallied in European trade Wednesday, recovering from four-month lows against the dollar, after the minutes of the Bank of England`s latest policy meeting showed that two members voted in favor of a rate hike.

Nine Committee members voted for an interest rate rise earlier this month, in the first split vote on rates since July 2011 and the first under Governor Mark Carney`s tenure.

Sterling rose to $1.66419, up compared with $1.66153 the day opening. The GBPUSD pair hit a four-month low of 1.66010 earlier in the day.

In the minutes of its August meeting, Martin Weale and Ian McCafferty both unexpectedly voted to start raising interest rates this month, becoming the first officials to do so in more than three years. The remaining seven members voted to keep the rate on hold.

The pound had previously dropped to 4 and ½ month lows against the U.S. dollar on Tuesday after a report showing that the annual rate of inflation in the UK slowed to 1.6 percent in July was seen as diminishing the likelihood that the BoE will raise rates this year.

Meanwhile, demand for the greenback remained supported after data on Wednesday showed that U.S. housing starts jumped 15.7 percent in July.

Investors were also awaiting minutes of the Federal Reserve`s July meeting for clues about the U.S. central bank`s monetary policy outlook.

Meanwhile, markets will closely examine Fed Chair Janet Yellen`s speech on Friday at a gathering of central bankers in Jackson Hole for clues as to how soon the Fed will begin to consider raising interest rates.

Dollar extended rise into a third straight session Wednesday, trading at 82.07 after starting the day at 81.92, also against the euro, dollar traded sharply higher at $1.32928. The euro had hit a two-month high of 80.37 last week after the Inflation Report.