Investing.com - The pound retreated from five-month highs against the dollar on Wednesday, erasing jobs report related gains after the Bank of England cut growth forecasts in its quarterly inflation report.
GBP/USD pulled back to 1.5644 from session highs of 1.5743, the highest since December 17.
The BoE trimmed its forecast for growth this year to 2.4%, down from 2.9% three months ago. It also revised down forecasts for 2016 and 2017 to 2.6% and 2.4% respectively.
BoE Governor Mark Carney reiterated that there are no signs that the U.K. is heading into a protracted period of deflation.
The central bank said it expects inflation, which currently stands at a record-low zero, to return to its 2% target in two years' time, little changed from its last report.
The bank also indicated that it is satisfied with the pace of rate hikes priced in by markets.
“A path that implied only gradual rises in Bank Rate over the next few years, broadly in line with the current market path, remained consistent with absorbing slack and returning inflation to the target within two years," the BoE said.
Interest rates are currently expected to start to rise in the second quarter of next year.
Sterling rallied earlier after the latest employment report showed that the U.K. unemployment rate fell to 5.5%, the lowest level since mid-2008.
The number of people out of work fell by 35,000 to 1.83 million and average earnings rose by 1.9% in the three months to March, up from 1.7% in the previous three month period.
The pound was slightly lower against the euro, with EUR/GBP up 0.15% to 0.7165 from lows of 0.7122 earlier.
In the euro zone, data on Wednesday showed that the economy grew 0.4% in the first quarter of 2015, the fastest rate of growth in four years.
The dollar remained broadly weaker against the other major currencies ahead of U.S. data on retail sales later in the day, after recent economic reports pointed to weakness in first quarter growth.
The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, was down 0.11% to 94.59, holding above last week’s two-month trough of 93.96.