Sterling hits fresh low vs dlr, inflation in focus

LONDON, May 14 (Reuters) - Sterling hit a near three-month low versus the dollar on Wednesday, with the Bank of England's inflation report eyed for any signs that price pressures will cap the pace of growth-boosting interest rate cuts.

Usually high inflation and the implication of on-hold or tightening monetary policy support a currency.

But for sterling the current worry is that not cutting rates fast enough may seriously hamper growth, so a surprisingly big jump in April consumer prices on Tuesday was seen as a negative.

A fresh sell-off is likely in case of high wage price growth data at 0830 GMT and any signals of slower rate cuts from the BoE's inflation report an hour later.

"They (BoE) have to make it clear that even though inflation is likely to rise quite sharply in the short-run, they are not going to allow it to become a medium-term problem. I think inflation is more of an issue for them than the weak activity data," said Paul Robinson, chief sterling strategist at Barclays Capital.

"Higher interest rates in themselves are positive for sterling. It's just that the UK economy seems to be in even more of a mess than it previously seemed to be, so net-net it's negative for sterling," he added.

Sterling fell to its lowest since Feb. 20, at $1.9392 <GBP=>. A move below $1.9335 would take it beyond this year's lows, to levels not seen since March 2007.

"With Bollinger bands and volatility on the increase we see a good chance of punching out a fresh yearly low not before long," SEB technical analysts said in a research note.

The euro was steady at 79.45 pence <EURGBP=> by 0733 GMT, depressed by a broad sell-off in euro/dollar due to stop-loss orders being triggered.