Sterling hits 1-month high as BoE's Carney quashes rate cut talk

By Anirban Nag and Jemima Kelly

LONDON, Feb 4 (Reuters) - Sterling hit a one-month high against the dollar on Thursday, putting it on track for its strongest week since 2009, after Bank of England chief Mark Carney quashed talk that interest rates could be cut in the coming months.

The pound had earlier dipped, falling 1 percent against the euro to a two-week low after minutes from the BoE's latest policy meeting showed the lone advocate of a rate hike reversed his position this month.

But though Carney echoed downbeat comments from central banks around the globe on the global economic outlook, he said the next interest rate move was likely be upward and all nine members of the Monetary Policy Committee shared that view.

"Overall, we believe today's decision and minutes provided little new news," Barclays (LSE: BARC.L - news) strategists said. "Further, it supports our view that a hike in the bank rate is off the table in the short term and will be pushed out to fourth quarter 2016 at best, acknowledging risks to the downside."

By 1530 GMT, sterling was trading up 0.1 percent on the day at $1.4610, taking its weekly gains so far to 2.5 percent. It (Other OTC: ITGL - news) had earlier touched $1.4672, its strongest since early January, after the dollar fell on U.S (Other OTC: UBGXF - news) . data showing jobless claims rising more than expected.

Traders said the bounce in the pound was largely due to a build-up of bets on further falls in sterling. With (Other OTC: WWTH - news) 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 of a deal with Brussels later this month giving Prime Minister David Cameron some help in keeping Britain in the European Union at a referendum.

Against the euro, sterling was 0.6 percent down on the day at 76.55 pence, having earlier touched 77.02.

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

After the Inflation Report, some traders said money markets were still pricing in a slight chance of a rate cut in coming months.

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

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, because foreign investors could pull out and dry up the capital inflows needed to fund the current account deficit. (Editing by Ruth Pitchford)