Sterling hits 4-week high vs dollar on UK rate outlook, awaits Fed

By Jemima Kelly and Anirban Nag

LONDON, July 29 (Reuters) - Sterling hit a four-week high against the dollar on Wednesday, boosted by signs of consumer demand in Britain picking up, with most awaiting a policy statement from the Federal Reserve for a steer on when U.S. interest rates will start to rise.

While the Fed is likely to hike rates by the end of the year, a recent slide in commodity prices and market turmoil in China have cast doubt on expectations of a September hike. The Bank of England, meanwhile, is expected to raise rates around the turn of the year.

Data released on Wednesday showed mortgage approvals in the UK rebounding in June, while another report showed increased buying of sterling debt by overseas investors. On Tuesday, data showed growth in the UK economy gathering pace in the second quarter, all of which underpinned the pound.

Sterling was up 0.4 percent at $1.5685, its highest since July 1, while the euro was down 0.7 percent at 70.40 pence .

"The Fed is going to leave their options open for a September rate hike but they're not going to get pre-committed," said Hans Redeker, global head of FX strategy at Morgan Stanley (Xetra: 885836 - news) in London.

"The BoE is also going to hike rates but I think it is going to be after the Fed. Why would you, as a relatively small country, raise your hat and say 'I'm first'?"

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 expose the first split on the nine-member MPC this year. Some are betting that up to three members will vote in favour of an immediate rate increase.

"The pace of rate hikes implied by the front end of the UK curve is slower than in the U.S. and has room to adjust, providing support for sterling as long as we don't talk about the balance of payments, or 'Brexit'," said Kit Juckes, currency strategist at Societe Generale (Swiss: 519928.SW - news) . (Editing by Mark Heinrich)