Sterling bucks broad dollar strength with help from UK rate outlook

LONDON, July 30 (Reuters) - Sterling defied a broad dollar rally on Thursday on expectations that the Bank of England is likely to follow the U.S. Federal Reserve in raising interest rates in coming months.

The dollar hit a one-week high against a basket of major currencies after the Fed took another small step towards raising interest rates later this year. After a two-day policy meeting, the Fed gave no clear indication on Wednesday on timing but what it did say was enough to encourage many to stick with expectations for a September rise in interest rates.

The Bank of England (BoE), meanwhile, is expected to raise rates around the turn of the year.

Recent data out of Britain has been robust, with consumer demand holding up well. On Tuesday, data showed growth gathering pace in the second quarter, all of which has underpinned the pound in the last few days.

Sterling was up 0.1 percent at $1.5607, having hit a four-week high of $1.5691 on Wednesday, its highest since July 1. The euro was down 0.4 percent at 70.21 pence , having hit a one-week low of 70.16 pence.

"If the Fed goes ahead and raises rates, it makes the task for the Bank of England to follow much easier," IronFX Global head of FX Strategy, Marshall Gittler, said.

"As a result, the pound will not be intimidated by a dollar rally and will tend to hold its ground."

The BoE's monetary policy committee (MPC (KOSDAQ: 050540.KQ - news) ) meets next week, and for the first time will simultaneously publish its decision on interest rates, the breakdown of how its policymakers voted along with a summary of their debate, and its quarterly forecasts for Britain's economy, including inflation.

No interest rate change is expected, although the vote could show the first split among the nine-member MPC this year. Some are expecting that up to three members will vote in favour of an immediate rate increase.

Analysts at Citi said that the BoE meeting next week would be the dominant influence, overshadowing any influence from domestic data, including a survey on consumer confidence. (Reporting by Anirban Nag; Editing by Louise Ireland)