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Forex - GBP/USD pares losses in wake of BoE inflation report

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Forexpros - The pound pulled back from the daily low against the U.S. dollar on Wednesday, paring losses suffered after the Bank of England lowered its forecast for growth and inflation, reaffirming the central bank's position to keep interest rates at a record low of 0.5%.

GBP/USD pulled back from 1.6189, the daily low, to hit 1.6263 during European afternoon trade, still down 0.32% on the day.

Cable was likely to find support at 1.6175, Tuesday's low and three-week low and resistance at 1.6409, Tuesday's high.

In its quarterly inflation report, the Bank of England said that it expected inflation to ease towards its 2% annual target by the end of 2012 and dip slightly below target in 2013.

In the short term, inflation could reach as high as 5%, BoE Governor Mervyn King told a press conference.

"The central projection for inflation in the medium term is a little below the 2% target, and a little lower than in May, reflecting the somewhat weaker outlook for the level of demand," King said.

The BoE added that economic growth was likely to remain "sluggish" in the near term, prompting the central bank to cut its year-end growth forecast to just below 2.0% from to 2.5% at the time of its May inflation report.

King said that, "in the committee's view, the weakness in underlying activity is likely to be somewhat more persistent than previously expected."

The statement added to the view that the central bank would keep rates at a record low for a longer period, while also reaffirming expectations the bank could introduce further easing measures if the economy deteriorated.

Meanwhile, the Federal Reserve pledged on Tuesday to keep its benchmark interest rate at an all-time low, adding that it will maintain a loose monetary policy until "at least through mid-2013."

The Fed also indicated that it "discussed the range of policy tools available to promote a strong economic outlook recovery in a context of price stability" and said it was prepared to employ the tools "as appropriate".

Elsewhere, the pound was also down against the euro, with EUR/GBP gaining 0.3% to hit 0.8836.

Later in the day, the U.S. was to produce data on the federal budget balance as well as reports on crude oil stockpiles and wholesale inventories.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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