The Bank of England - in its Quarterly Inflation Report - said that its central forecast for inflation is for inflation to peak at 4.4% this year before easing to the 2 % goal by the middle of 2012. It would then actually fall below the target by the end of the forecast period.

We saw yesterday, consumer prices were up 4%, which is double the target rate.

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As we can see from the chart above, we have exceeded 3% for almost a year now. Still, this forecast by the bank doesn't call for rate hikes, and instead sees inflation going away on its own. That's a less aggressive posture than the markets had been pricing in following the last BoE Meeting Minutes.

BoE Governor Mervyn King wanted to tone down any notion that the bank had already decided to raise rates at a certain time.

From Bloomberg: King Says Bank of England May Keep Rate at Record Low for Months to Come

Some people are running ahead of themselves in saying that we are pre-announcing, or we're laying the ground, for a rate rise, King told reporters in London today. That decision has not been taken and it won't be taken until we get to the next meeting, or the following meeting and it may be many quarters before we do anything.

With these enormous challenges which few of us have experienced in our lifetime, with these big and difficult judgments about whether inflation expectations might pick up, about what will happen to the future path of inflation, how much spare capacity is there, surely this is the sort of time when you'd expect differences in view and judgment on the committee, King said.

The best collective judgment of the committee is that the chances of inflation being above or below the target are broadly equal, King said. The recovery is unlikely to be smooth.

There's disagreement but it seems again that King is trying to posture to tone down expectations about a rate hike in the near future. That will be GBP negative, though we have to see how the bond markets react to such news.

GBP/USD - 1 Hour Chart (7:50AM ET): GBP Slides 0.6%

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In the GBP/USD we saw the pair fail to rally past 1.6189, and fall down to 1.6040 prior to the start of NY trading. That undoes the bullish action we saw in the GBP yesterday.

Yesterday, the release of the CPI helped give the GBP a nice rally, as it broke through a downward resistance trendline that we were looking at in the 4 hour.

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Today's action strongly nullifies that bullish attempt. We have several pivots to test to the downside, and it didn't help the Pound's cause that the number of Britons claiming unemployment claims unexpectedly rose in January.

From Reuters: UK jobless claimant count rises, wage growth subdued

The number of Britons claiming unemployment benefit rose unexpectedly last month while the total number out of work also climbed in the three months to December and pay growth slowed, official data showed on Wednesday.

The figures highlight the fragility of Britain's labour market even before the bulk of the government's austerity measures take effect. The Office for National Statistics said the number of people claiming jobless benefit rose by 2,400 last month. Analysts had forecast a fall of 3,000.

The number of people without a job on the wider ILO measure rose by 44,000 in the three months to December to 2.49 million. The jobless rate held steady at 7.9 percent as expected.

With an uneven recovery, a BoE that is trying to temper expectations about a rate hike, and signs of strain already in labor markets prior to the bulk of austerity measures means the fundamental picture around the GBP is somewhat shaky. We'll see if this downtrend we've see since the start of February continues now that we pulled back strongly from 1.62 area.