This mornings Bank of England quarterly inflation report didnt really produce too many surprises apart from the fact that Mervyn King didnt talk sterling down.
After this weeks downgrade of 2011 growth expectations by the CBI it was no real surprise that the bank followed suit, cutting them to 1.7% from the previous 2% figure.
Inflation continues to remain a problem even allowing for the fact that we have seen Brent prices slip back 6 from the highs seen last week.
The governor went on to say that inflation could well increase from the current level of 4% to 5% later this year and would in all likelihood remain above the 2% target throughout 2012.
Mr King went on to borrow a comment from Ben Bernanke last year when he went on to say that the outlook for both measures in the UK economy was likely to remain unusually uncertain.
Next week we will see how the latest rises in oil prices have impacted on CPI as well as the latest patterns in the voting committee, with the release of the latest minutes.
This will be particularly noteworthy given the governors comment about a wider range of views on the MPC than normal. Given that the views recently have been pretty wide anyway it seemed a rather strange thing to say.
Looking at the balance of probabilities for next month it does seem likely that there could be one less hawk than normal as Andrew Sentance has now left the committee.
Given the recent downgrade in growth expectations it is also not beyond the realms of possibility that Martin Weale may well have changed his vote given his recent comments about the levels of growth.
The pound continues to remain underpinned, however on the basis that a rate hike this year still seems to be priced in, albeit in Q4, and against the dollar it is currently running into some resistance around 1.6500, which is a pullback resistance line from an earlier break lower of a possible head and shoulders reversal pattern.
A break above this 1.6500/10 area could well see further gains towards 1.6570 and the 4th May highs.
While below 1.6500 then a return towards 1.6380 and the recent lows around the 55 day MA at 1.6280.
Against the Euro the pound is currently testing support at the 50% retracement level at 0.8700 of the recent up move from the 0.8355 low to the recent highs at 0.9045.
A break below could well target the 0.8620 area.
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