* 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
(Adds new quote, milestone, updates prices)
By Patrick Graham and Jemima Kelly
LONDON, March 17 The pound hit a two-week high
against the dollar on Friday, drawing confidence from signs that
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 prioritising concerns
about inflation and inflation expectations over any impact on
demand," said Hamish Pepper, a currency strategist with Barclays
"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 as high as $1.2399 on Friday, its
strongest since March 1. By 1643 GMT it was slightly below that
high at $1.2384, still 0.2 percent higher on the day.
Against the euro, sterling climbed half a percent to 86.73
"It is clear that Brexit fears are definitely helping the
central bank as the pound remains weak," said Peter
Rosenstreich, head of market strategy at online bank Swissquote.
"We maintain our bullish view on the pound and we see
European uncertainties growing in the medium term, in particular
given the French elections."
(Editing by Mark Trevelyan)