STERLING LOSES all of yesterdays gains after the Bank of Englands inflation report reinforced expectations that any positive sterling impact from deficit-reduction plans may not survive the growth implications of these measures. The BoE reiterated that inflation will drop below the 2% target in 2010, which will maintain interest rates at 0.50% for some time. We warned in last nights IMT about the negative impact that could occur from the inflation report. GBPUSDs failure at the Apr 27 trend line resistance of $1.5050 could risk extending losses towards $1.4770. This also translates to a possible 0.8580 in EURGBP after the pair held at the 0.84 support. AUDUSD remains capped at 0.9050, targeting medium term objective of 0.8780 (before end fo quarter).