* Fed hikes rates, outlines plan to reduce bond holdings
* Australian dollar rises on robust employment figures
* New Zealand dollar skids after GDP growth falls short
* Graphic: World FX rates in 2017 tmsnrt.rs/2egbfVh
By Ritvik Carvalho
LONDON, June 15 Sterling surged over a full cent
on Thursday following signs of a shift in the Bank of England's
stance on keeping UK interest rates at record lows, while the
Federal Reserve's sticking to expectations of further rises
lifted the dollar.
Two more policymakers at the Bank of England (BoE) joined
existing rate rise advocate Kristin Forbes in calling for a
reversal to the Bank's cut to interest rates last August,
sending the pound as high as $1.2795 in the minutes following
the Bank's decision, which left rates unchanged.
Economists polled by Reuters had expected only Forbes -
whose term on the Bank's rate setting committee expires at the
end of the month - to back higher rates, especially given a
slowdown in growth in the first three months of 2017.
The risks to that view - and to sterling - were underlined
by another lower than expected batch of retail sales data
"I still think there is a case for weaker (UK) growth so I
don't really agree with their arguments in the minutes this
time," said Richard Falkenhall, currency strategist with SEB in
Stockholm, adding that he saw no change to the Bank's policy
this year or in the next.
"What will be important (for sterling going forward) is
really the tone we will have in the first negotiations which
will begin next week between the UK and the EU."
The pound has hovered near the $1.27 mark after a near 3
percent fall in the wake of Britain's election last week, which
produced a "hung" parliament - no clear majority for any party.
Prime Minister Theresa May and her Conservative party are
still in talks with another party from Northern Ireland to form
a government, with just days remaining before the planned start
date of talks on Britain's exit from the European Union.
The dollar inched higher against a basket of peers,
after the Federal Reserve's policy meeting kept up expectations
of another interest rate hike this year.
As widely expected, the Fed raised interest rates a quarter
percentage point to a target range of 1.0-1.25 percent on
Wednesday but it also gave its first clear outline on its plan
to reduce its $4.2-trillion bond portfolio.
That undid all of the damage done to the greenback in Asian
trading and pushed it higher in morning European trade.
The dollar was up half a percent against both the euro and
the Japanese currency, at $1.1161 per euro and 110.080 yen.
The index that measures its broader strength was up 0.4
percent at 97.296.
A Reuters poll of 21 of the 23 primary dealers that do
business directly with the Fed showed 14 of them now believed it
would announce the start of its balance sheet normalisation at
its Sept. 19-20 policy meeting. The rest of them said it would
make such a move at its Dec. 12-13 meeting.
"Long term Fed expectations remain very much supported -
that is the main reason why the dollar is remaining supported
for now," said Manuel Oliveri, currency strategist with Credit
Agricole in London.
For Reuters Live Markets blog on European and UK stock
markets see reuters://realtime/verb=Open/url=http://emea1.apps.cp.extranet.thomsonreuters.biz/cms/?pageId=livemarkets
(Reporting by Ritvik Carvalho; Editing by Keith Weir and Pritha