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The pound dipped below $1.26 against the dollar after the Bank of England raised its growth forecast to 2 per cent this year, up from a prior forecast of 1.4 per cent.
The pound, which had pared earlier gains ahead of the decision, hit its lowest level all day after the BoE held interest rates at 0.25 per cent as expected in a unanimous vote and made no changes to its government and corporate bond purchase schemes.
Sterling was trading 0.5 per cent lower on the day in the immediate aftermath of the announcement at just under $1.26 against the dollar.
Sterling had earlier hit its strongest level in more than two months to trade over $1.27 against the dollar for the first time since mid-November.
Simon Derrick, a currency analyst at BNY Mellon, suggested the dip in sterling could be due to the relatively muted inflation forecasts from the Bank.
The Bank predicted inflation would hit 2.7 per cent this year, down from a previous forecast of 2.8 per cent, falling to 2.6 per cent in 2018 and 2.4 per cent in 2019.
Chart above courtesy of Bloomberg.