A grim outlook for the UK economy in the latest Bank of England minutes also knocked sentiment towards the pound, with policymakers expecting the economy to remain stagnant in the near term while inflation rises. They also showed one member, David Miles, voting for more asset purchases, known as quantitative easing. But year-end demand helped the pound to a three-month high against the dollar of $1.6307, just shy of the mid-September peak of $1.6310. It was last up 0.2 percent on the day at $1.6278, with traders earlier reporting US and Middle East investors buying sterling and selling the dollar.
"The minutes were close to expectations. It is more the dollar (weakness) that is helping both the euro and sterling higher," said George Saravelos, G10 FX strategist at Deutsche Bank. The dollar was also under pressure as investors bought assets and currencies linked to growth on expectations US lawmakers will strike a deal on the 'fiscal cliff' of tax rises and spending cuts due to kick in early in 2013. Some economists said they expected BoE policymakers would hold back from more QE in the first half of 2013, which could lift the pound. However, the possibility the UK economy will contract in the fourth quarter, which was flagged in the BoE minutes, could dampen the pound's rise.