Investing.com - The pound fell to almost five-year lows against the dollar on Wednesday after the Bank of England warned that sterling’s recent gains could keep inflation below target, which would warrant keeping interest rates on hold for longer.
GBP/USD hit lows of 1.4635, the weakest since June 14, 2010 and was last at 1.4668, down 0.54% for the day.
Sterling dropped after the minutes of the BoE's March meeting showed that officials are concerned that the currency’s recent gains may continue, due in part to the European Central Bank launching its trillion-euro quantitative easing program.
“Although monetary policy at home and abroad was only one of the many factors that influenced the exchange rate, especially in the near term, there was a risk that divergent monetary policy trends, as well as stronger prospects for growth in the United Kingdom than in the euro area, might continue to put upward pressure on the sterling exchange rate,” the minutes said.
"This had the potential to prolong the period for which CPI inflation would remain below the target and exacerbate the risk that lower expectations of inflation might become more persistent."
Sentiment on sterling was also hit after official data showed that U.K. wage growth slowed in January, while the unemployment rate held steady at 5.7%.
Also Wednesday, the U.K. revised up its growth forecasts as Chancellor George Osborne delivered the annual budget.
The economy is now expected to grow 2.5% this year, up from a forecast of 2.4% in December, Osborne said. The economy is now expected to expand 2.3% in 2016 compared with 2.2% in December.
The BoE has forecast economic growth of 2.9% this year and in 2016, with lower oil prices expected to boost growth.
Elsewhere, the pound fell to one-and-a-half week lows against the euro, with EUR/GBP up 0.65% to 0.7231.
Investors were looking ahead to the Federal Reserves monetary policy statement later Wednesday, which was widely expected to provide insight into the timing of an interest rate increase.
The Fed is widely expected to start raising interest rates around mid-year and investors were expecting the U.S. central bank to drop its reference to being “patient” on the timing of a rate hike in its policy statement.
The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, was steady at 99.98.