Pound hits fresh four-year high against dollar on dovish Fed

Peter Spence
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Yesterday's Federal Reserve statement was more dovish than markets had expected (Source: Getty)

Sterling has made a leap higher against the US dollar this morning, granted strength by comments from the Bank of England signalling that a rise in rates may be approaching.

The pound rose about the $1.701 level earlier today, a new post-August 2009 high. A relatively dovish statement from the US Federal Reserve last night has seen the dollar weaken as traders digest the release.

The "dot plot", a chart which shows where members of the Federal Open Market Committee see rates over the coming years, was "distinctly more dovish," says Berenberg's Christian Schulz.

Participants saw the first rate hike further away than in March, with just 12 members expecting US interest rates to rise in 2015, down from 13 at the last meeting. The plot now shows one more member forecasting rates won't start to normalise until 2016.

Yesterday minutes from the UK's Monetary Policy Committee (MPC) revealed that members believe that "the relatively low probability attached to a bank rate increase this year implied by some financial market prices was somewhat surprising".

Sterling broke the $1.70 level for the first time in nearly five years on Monday, buoyed by suggestions from Mark Carney the week before that the first rate hike "could happen sooner than markets currently expect".

In a Sunday Times interview Bank staffer Charlie Bean said that he would welcome an increase to the bank rate as "an indication that we are on the road back to normality".