Sterling firms as BoE's Carney says next rate move likely to be a hike

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By Anirban Nag

LONDON, Feb 4 (Reuters) - Sterling recouped losses and moved back towards a one-month high against the dollar on Thursday after Bank of England chief Mark Carney quashed expectations that interest rates would be cut in the coming months.

Carney told a news conference that all the nine members in Monetary Policy Committee were of the view that the next move in rates was likely to be up than down.

Earlier in the session, the pound had retreated, falling 1 percent against the euro after minutes from the Bank of England's (BoE) latest policy meeting showed the only policymaker voting for a rate hike had dropped his call.

In its Quarterly Inflation Report also released simultaneously, the BoE cut its economic growth forecasts due to a gloomier global outlook.

The central bank said its Monetary Policy Committee had voted 9-0 to keep rates on hold at a record-low 0.5 percent. One MPC (KOSDAQ: 050540.KQ - news) member, Ian McCafferty, had voted for a rate rise since August.

Sterling rose 0.15 percent to $1.4620, having fallen to a day's low of $1.4533, immediately after the BoE minutes and the Inflation Report, having hit a one-month high of $1.4665.

The euro was up 0.6 percent at 76.56 pence, having traded at 76.53 pence during the session.

After the Inflation Report, some traders said money markets were pricing in a slight chance of a rate cut in coming months, a factor that is likely to keep a lid on the currency.

"The Inflation Report ticks all the boxes on the dovish side and with McCafferty changing his call, we can expect more sterling weakness," Saxo Bank head of currency strategy, John Hardy, said.

Sterling had risen 4 percent in the past few days from its seven-year low of $1.4080 on Jan. 21. The rise accelerated on Wednesday after a top Federal Reserve official tempered expectations on the pace of future U.S (Other OTC: UBGXF - news) . interest rate increases.

Traders say the bounce in the pound was largely the product of a build-up of huge bets on further falls in sterling. With the currency rising in recent days, many speculators are being forced to exit those bets, leading to a squeeze.

The currency has also been helped by signs a deal will be signed with Brussels later this month that will give Prime Minister David Cameron something to help in his fight to keep Britain in the European Union at a referendum.

Markets are speculating that the vote will be held in the middle of this year, a factor that is likely to keep trading in the pound rather choppy in the coming months.

Goldman Sachs (NYSE: GS-PB - news) said on Thursday sterling could fall as much as 15 to 20 percent if Britain votes to leave the EU, which could alarm foreign investors and dry up the capital inflows needed to fund the current account deficit. (Additional reporting by Andy Bruce; Editing by Louise Ireland)