Pound notes
Pound has rallied on the BoE minutes as the document showed policymakers are optimistic of inflation reboundingReuters/Catherine Benson

The hawkish bias in the comments of the MPC members of the Bank of England as revealed on 22 April drove the pound back near last week's one-month high versus the dollar, yen as well as the euro, while pushing up short term gilt yields.

The minutes showed all the members see the Bank Rate rising over a three-year horizon and the committee is generally optimistic about wage and price inflation catching up with economic growth.

GBP/USD jumped to 1.5049 from near 1.4960 following the release of the minutes. At the high, the pair was only a shade away from the 17 April one-month high of 1.5055 and was up 0.86% on the day.

Against the yen, Sterling rose to a one-month high of 179.67, up 0.6% on the day and moving further off the six-month low of 174.88 touched last week. EUR/GBP fell to 0.7155, its lowest since 19 March, and from the previous close of 0.7191.

Traders had been weighing more negative news than positive over the past in the new year, pushing the UK currency down to a five-year low of 1.4565 last week.

In addition to uncertainty surrounding the likely outcome of the UK general election on 7 May, disinflation and downside risks to growth have all been drag on Sterling.

However, of late, analysts had been looking at the possibility of risks skewed more towards north for the pound, rather than to the south, thanks to the sufficient negativity that has been priced in already.

"The debate has become a lot more balanced in the past few months, with the market having pushed out the pricing of the first tightening back into 2016," said Simon Smith, chief economist at FXPro, in a morning note earlier on Wednesday.

"As for sterling, this has been underperforming in recent weeks on the back of general election uncertainty, but there is a lot already in the price so if anything, the short-term risks are for a squeeze higher. The 1.5000/54 area remains crucial and a push above could see a greater squeeze higher ahead of the election."

After the BoE minutes, yields on the short end of the gilt curve rose sharper than those on the long end, given the slight hawkish bias in the tone of the comments.

The two-year yield rose four basis points to 0.508% while the 10-year yield moved only two basis points higher to 1.588%.

All the analysts are not ready to completely buy the "inflation following growth" theory.

The BoE is still puzzled about where the inflation is according to Ranko Berich, head of market analysis at Monex Europe as he notes that the expected inflation has failed to rear its head in the UK.

Despite economic theory and the Bank's models indicating that prices and wages should be about to increase, the latest inflation figures show an almost complete lack of upwards price pressure, and not just in food and fuel, Berich said in the note he emailed to IBTimes UK.

"In these circumstances, the BoE has no option but to wait and see. There is sufficient uncertainty around estimates of slack in the UK economy to justify cautious monetary policy in the immediate future. Should wages show the improvement that the Bank expects, this may all change, but in the meantime, the Bank's policy can only be extreme caution."