LONDON Sterling rebounded from a five-week low against the dollar on Thursday after a Bank of England policymaker said she saw no case for a further cut in interest rates to boost the economy following Britain's vote to leave the European Union.
The comments from Kristen Forbes - one of the known hawks on the BoE's monetary policy committee - put her at odds with the majority of her fellow rate-setters, who earlier this month signalled that rates would probably be cut again this year after they were reduced to record lows in August.
But they followed upbeat comments from new MPC member Michael Saunders on Wednesday, who said Britain's economy is likely to grow at a reasonable pace in the coming years, slowing less than most economists anticipate as it overcomes "modest" fallout from the Brexit vote.
Having slipped to as low as $1.2946 the previous day after falling below $1.30 on Tuesday, sterling climbed 0.6 percent on the day to trade at $1.3104 by 1535 GMT. Against the euro, it rose 0.1 percent to 85.79 pence.
"The move below $1.30 on Tuesday got people a little bit excited that sterling may be due for another move to the downside, but we're making new highs for the week now," said Altana Hard Currency Manager Ian Gunner.
"We may be getting into a small spell of sterling strength here. But this issue (terms of Brexit) isn't going to get resolved for quite some time."
Sterling was also boosted late on Wednesday by weakness in the dollar after the U.S. Federal Reserve kept monetary policy steady and projected a less aggressive path for rate hikes in coming years.
While the Fed strongly signalled it could tighten monetary policy by the end of 2016, policymakers cut the number of rate increases they expect this year to one from two. That put pressure on the dollar and helped relieve some of the selling that the pound had witnessed this week.
Investors will now focus on a speech from Bank of England chief Mark Carney in Berlin later in the day. In testimony earlier this month to lawmakers, Carney kept the door open for more monetary easing, despite recent UK data surprising on the upside.
"We will be looking for signs on whether he thinks there is need for another rate cut soon," said Hans Redeker, head of currency strategy at Morgan Stanley. "A key level to watch to the upside for sterling/dollar is the 50-day moving average at $1.3147."
Traders said gains in sterling are likely to be limited as worries over Britain's exit from the EU and its impact on the economy have firmly come back on investors' radar.
(Additional reporting by Anirban Nag; editing by Mark Heinrich)