Sterling dropped sharply against the U.S. dollar Thursday after the Bank of England announced the first rate hike since the financial crisis, but said any subsequent rises would be gradual.

The pound was trading at $1.3113 shortly after midday London time, but was close to $1.322 just before the rate decision. It was down nearly 1 percent against the greenback for the session.

The Bank of England announced a 25 basis points hike to 0.5 percent with seven of its members voting for the move. The bank said that any future increases should be “gradual” and to a “limited extent.”

“The sell on the fact reaction experienced by the pound signals that the market was expecting a more hawkish set of minutes,” Jane Foley, head of forex strategy at Rabobank, told CNBC via email.

“For now these minutes support the ‘one and done’ view. However, Carney may have something a little more hawkish up his sleeve at his press conference. Specifically the market will be watching to see if he repeats his August comments about slower than otherwise investment leading to increased risk of capacity constraints,” she added.

The central bank expects the inflation rate to rise 3.2 percent in November and 3 percent for the year as a whole. The bank had previously said that inflation would be 2.8 percent in 2017.

Source: cnbc
Sterling tanks as BOE hikes rates but signals only gradual easing in future