The pound retreated from its previous highs against the other major currencies in European deals on Wednesday, after the Bank of England downgraded U.K. forecast for this year, while warning on the strength of the domestic currency.
The economy is forecast to expand 2.5 percent in 2015, down from the prior projection of 2.9 percent, BoE said in its quarterly Inflation Report, released Wednesday. Growth is projected to be at or a little below its historic average throughout the forecast period.
The pound has appreciated further, which is likely to impact changes in growth and policy expectations and accompanying relative changes in market interest rates, the bank noted.
According to BoE, inflation will rise notably around the turn of the year. It is expected to rise further as wage and unit labor cost growth picks up and the effect of sterling’s appreciation dissipates.
As the drag from domestic slack continues to fade, inflation is projected to return to target within two years and to move slightly above the target in the third year of the forecast period, the BoE said.
The pound fell to 1.5634 against the greenback and 187.24 against the yen, off early 5-month highs of 1.5746 and 188.58, respectively. The pound ended Tuesday’s trading at 1.5666 against the greenback and 187.79 against the yen.
The pound, having advanced to a 2-week high of 1.4608 against the franc and near a 3-week high of 0.7122 against the euro in early deals, eased to 1.4508 and 0.7174, respectively. At Tuesday’s close, the pound was valued at 1.4558 against the franc and 0.7152 against the euro.
The pound may possibly challenge support around 1.56 against the greenback, 184.00 against the yen, 1.44 against the franc and 0.725 against the euro.
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