* Graphic: sterling and gilt yields bit.ly/2dgAXn1
* Graphic: World FX rates in 2017 tmsnrt.rs/2egbfVh
* Graphic: Trade-weighted sterling since Brexit vote tmsnrt.rs/2hwV9Hv
By Patrick Graham
LONDON, March 17 The pound rose for the third
day running against the dollar on Friday for the first time
since mid-January, drawing confidence from signs some at the
Bank of England may be leaning toward a rise in interest rates
to support the currency.
Minutes from the Bank's latest Monetary Policy Committee
meeting shocked markets on Thursday by showing one outgoing
official voting for a rise in rates and others on the verge of
doing so if inflation gets much higher.
That seemed incongruous after a month where the hard numbers
have finally begun to point to a weakening of economic growth as
consumers face the effect of a 20 percent fall in the pound, a
weaker housing market and uncertainty over jobs and investment
as the government gets ready to launch Brexit talks.
Analysts said the turn away from the support the bank gave
the economy with a cut in rates last August was probably chiefly
due to the need to avoid another sharp fall in the pound.
"To me this was the sound of them (the BoE) prioritising
concerns about inflation and inflation expectations over any
impact on demand," said Hamish Pepper, a currency strategist
with Barclays in London.
"They know the currency has fallen a lot and they know that
is going to add to imported price pressure. The worry is whether
that is starting to have an impact on inflation expectations. I
think they are quite happy to have the market price in some
chance of a rate rise over the next year or two."
Short sterling futures for next March have shifted by six
basis points since the bank's statement on Wednesday and now
price in a single rise in interest rates over the next 12
That should offer the pound some support as it heads into a
period of renewed political pressure when Brexit talks start
A number of major banks have forecast sterling will fall
below $1.20 in the months ahead, but helped by the BoE, it has
this week ridden out political noise around a new Scottish
independence referendum and the risks of a poor Brexit deal.
It traded 0.3 percent higher on Friday at $1.2395 and
86.89 pence per euro respectively.
"Our belief that the BoE’s policy stance will shift later in
the year looks to have become a reality a little earlier than we
expected," said Derek Halpenny, European head of global market
research with MUFG in London.
"We certainly didn’t expect much in the way of a shift from
yesterday’s meeting but that is exactly what we got. We expect
the pound to benefit further."
(Editing by Julia Glover)