The British pound tumbled to the lowest level since August against the dollar after Dovish comments from the Bank of England.

The pound fell to an intra-day low of $1.5522 before later trading at $1.5537 compared to $1.5652 on Tuesday after the BoE warned that UK inflation may reach 3% by this summer, above its 2% target.

The central bank added that inflation would likely stay above its 2% target until early 2016.

In the BoE's three-monthly inflation report, Governor Sir Mervyn King conceded that output had been broadly flat for the last two years, but on a brighter note, he noted a "more encouraging" underlying picture.

"The UK economy is set for recovery, that is not to say that the road ahead will be smooth. It hasn't been a normal recession and it won't be normal recovery," King said.

Gross domestic product (GDP) growth is expected to stay below its pre-financial crisis level until 2015.

Commenting on the technical situation of 'cable', as the Sterling/US dollar cross (GBP/USD) is known in the markets, this is what analysts at Commerzbank had to say this morning: "GBP/USD remains under pressure following its break below the 1.5642 2009-2013 uptrend. It remains directly offered below its 20 day moving average at 1.5737 and the break lower has introduced scope to 1.5271/35, the 2012 low. This is also the 50% retracement of the move since 2009 located here. This will be a key magnet for price."

The dollar index, which measures the US currency against a basket of six others, traded at 80.082, after a volatile session moving between gains and losses. The index traded at 80.083 on Tuesday.

Meanwhile the greenback reduced losses against the Japanese yen ahead of the G20 meeting on Friday and Saturday in Moscow. Currency fluctuation is expected to be central to talks.

The yen had previously fallen after a statement from G7 officials was mistakenly understood to approve Japanese policies aimed at weakening the yen.

It is G7 policy to intervene if "excessive volatility and disorderly movements in exchange rates can have adverse implications for economic and financial stability," officials said.

The euro changed hands at $1.3448 versus $1.3449 on Tuesday.

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