LONDON- The British pound weakened slightly on Thursday after the Bank of England lifted its growth forecasts but warned Brexit continued to cloud the outlook for monetary policy.
Policymakers voted unanimously to keep interest rates steady at 0.75 percent, as expected in a Reuters poll, but stuck to their view tighter policy would be needed in future.
The moves in the pound in response were small, with investors saying that recent signs of a possible breakthrough in Brexit talks remained the main driver for the currency.
Sterling has traded in a narrow range of $1.28-$1.30 since Britain last month pushed its scheduled departure from the European Union back from March until Oct. 31.
But the currency hit a two-week high on Tuesday and has been nearing $1.31, helped by comments from Prime Minister Theresa May suggesting a rapprochement in talks with the main opposition Labour Party.
After the BoE decision, the pound initially broke higher before dropping to a day's low of $1.3023, down 0.1 percent on the day. It also weakened to the day's low against the euro, softening 0.2 percent to 86.05 pence.
The BoE upgraded its forecast for growth in the world's fifth-largest economy to 1.5 percent, up from the decade-low 1.2 percent it predicted in February.
"The sterling-dollar pair moved lower because the decision doesn’t show any hawkish member in the committee," said Naeem Aslam, chief market analyst at TF Global Markets (UK) Ltd in London.
"The message is clear: the BOE also wants to practice patience and asses things more closely before any decision on the interest rate hike," he added.
The delay of Brexit removed the immediate risk of a disruptive, no-deal British departure which hung over the BoE at its last meeting in March, but extends a period of economic uncertainty.
There is still little clarity about when, how, or even if, Brexit will happen.
With Japan out for a week of holidays, traders are worried that the absence of Tokyo, one of the world's top five currency trading centres, might fuel some exaggerated moves in foreign exchange markets.
Overall volatility in the currency markets remained near five-year lows.
Despite the pound's gains against the dollar, net positions by hedge funds in sterling slipped back into negative territory, according to the latest data.
(Reporting by Tom Finn Editing by Angus MacSwan and Peter Graff) ((tom.finn@tr.com; +44 2075427508 ; Reuters Messaging: tom.finn.reuters.com@reuters.net))
