Sterling retreats from recent peak after BoE minutes

LONDON, April 23 (Reuters) - Sterling fell against the dollar and the euro on Wednesday after Bank of England minutes highlighted a growing debate between policymakers about slack in the economy and the medium-term inflation outlook.

Sterling eased to $1.6802 against the dollar from around $1.6823 before the minutes were released. The currency had struck a 4 1/2-year high of $1.6842 on April 17 and some traders said the minutes were used as an excuse to book profits.

The euro rose to a session high of 82.405 from around 82.30 pence beforehand. The common currency had fallen to a two-month low on Tuesday, but it was supported on Wednesday by better-than-expected euro zone "flash" PMI surveys.

The pound was little moved by data which showed Britain's budget deficit in the 12 months to March shrank to its lowest since the financial crisis.

"The market will have to get used a number of views, often conflicting, from policymakers," said Nawaz Ali, market analyst at Western Union. "But overall, the minutes are highlighting a rise in wages and a more durable recovery and is also quiet about sterling strength. So we could see sterling recover."

Sterling overnight interbank average rates - the short-term interest rates that form the basis of lending costs to the wider economy - were still pricing in a chance of a rate hike in 11 months.

Those expectations got a boost after data last week showed unemployment fell to a five-year low of 6.9 percent in the three months to February, down from 7.2 percent in the three months to January and below a forecast in a Reuters poll of 7.1 percent.

Wage growth also picked up to 1.7 percent in the three months to February, when consumer prices also rose 1.7 percent. It was the first time since April 2010 that the pay growth rate did not lag the consumer price index and added to the bullish sentiment about the UK economy.

"A buoyant labour market remains the key supportive factor for the pound, and that is why we continue to expect notable declines in euro/sterling going forward," said Derek Halpenny, European head of global market research at Bank of Tokyo Mitsubishi (Dusseldorf: MBI.DU - news) .

The pound is also expected to remain buoyant against the euro after recent warnings from European Central Bank President Mario Draghi that any further strengthening of the common currency would require further stimulus. (Reporting by Anirban Nag; Editing by Larry King)