The dollar clawed back some lost ground against sterling yesterday as foreign exchange markets continued to weigh the forward prospects of interest rates.

The pound fell back to $1.9672 after reaching a 14 year high of $1.9917 late Tuesday, while the euro traded at $1.2961 and the yen rose to ¥121.64 against the dollar.

Sterling weakened from its previous highs after the release of Bank of England notes showing that the recent rate rise was carried by five votes to four, less than expected.

The yen was also affected by rate speculation after a European Central Bank source told Reuters that the EU would pressure Japan on what he said was the yen's undervaluation.

EU finance ministers are currently drafting a formal position to take at next month's G7 meeting the source said.

The yen has suffered on the markets since Japan's central bank said that rates would remain at 0.25 per cent, in what was said to be a surrender to political pressure.