Sterling took a step back against the euro and dollar on Tuesday as the market grew edgy that Bank of England minutes due this week would show monetary policymakers to be less hawkish than anticipated. Britain has raised interest rates four times in eight months and the prospect of more aggressive tightening to cool the housing market and deter consumers from piling on debt sent the pound to its highest since October 2002 in trade weighted terms last week. Minutes from the last rate meeting earlier this month, at which the Bank put rates up a quarter point to 4.5 percent, are due on Wednesday and analysts said nervousness that they might show policymakers ready to pause was weighing on sterling. "People are a little uneasy about tomorrow's MPC minutes. If they don't bring a July rate hike firmly on to the agenda, there could be a sense the interest story will lapse a little in the short term," said Ian Gunner, head of currency research at Mellon Financial in London.
"If there are interim developments, like a weaker housing market, then some of the aggressive rate hike expectations built into the curve could mean vulnerability in the money markets and therefore in sterling." By 0845 GMT the pound was trading a third of a percent lower on the day at $1.8252 . The pound has been trading in a broad range of $1.7450-1.8490 in the past two months as UK interest rate expectations have vied with U.S. rate hike expectations in driving market dynamics. Sterling was slightly softer on the day against the euro, trading around 66.16 pence per euro . It touched a one-year high of 65.41 earlier this month. On a trade-weighted basis it was holding around 105.9 <=GBP>, having climbed above 107 last week. A leading indicator of the UK economy's future performance fell for the fourth month in a row in May and was predicting slower growth by the end of the year. The indicator from NTC Research fell to 100.4 from a revised 101.1 in April.///