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Sterling fell sharply to 1.5635 from 1.5746 (-111 pips) after the release of the Bank of England Quarterly Inflation Report viewed as being dovish. The pound reversed its direction after the initial 76 pip gain it made from the prior UK April Employment Data.
The Bank of England cut its forecast for UK economic growth for the next three years. The central bank cut its 2015 forecast to 2.4% from 2.9% in February. The BOE said its growth downgrade was due to likelihood that interest rates rose fater than market expectations, a stronger currency and a weaker outlook for the housing sector.
The MPC also predicts the recent decline in commodity prices to be relatively short lived and will continue to monitor them in setting monetary policy.
The BOE said that it expected UK inflation to return to its 2 percent target in two years' time.
BOE Governor Mark Carney said that inflation was likely to pick up later this year.