By Jessica Mortimer
LONDON, Nov 12 (Reuters) - Sterling fell to its lowest in more than a week against the euro on Wednesday after the previous day's weak inflation data fanned concerns that the Bank of England's quarterly inflation report may set a dovish tone.
The unexpected slowing in inflation to its lowest in more than a year last month prompted worries the BoE may downgrade its forecasts for the level of price increases. This could lead investors to push back their expectations for when UK interest rates will rise, potentially nudging the pound lower.
However, UK jobs data at 0930 GMT could give the pound a short-lived boost. The BoE will present its report at 1030 GMT.
The euro was up 0.1 percent at 84.525 pence, having hit a high of 84.64 pence, its strongest since Nov. 4.
It touched a low of 83.00 pence last week after an unexpected European Central Bank interest rate cut highlighted the difference between euro zone and UK monetary policy.
Analysts said the key to sterling's direction would be whether BoE governor Mark Carney puts the emphasis on risks of inflation slowing or on the better outlook for UK growth, which would boost the pound.
'The risks are that the forecasts for inflation will have an impact on how far sterling can strengthen,' said Sasha Nugent, analyst at Caxton FX.
'The inflation data was quite a bit lower than expected and the thinking was that if it was that far away from expectations then the Bank of England may have to lower its forecasts for inflation.'
She said euro/sterling could drop back towards 83 pence if Carney stressed the stronger growth outlook.
Many in the market expect that, after recent strong data, the BoE will bring forward the point at which it sees unemployment hitting 7 percent - the level at which it would consider raising rates.
'Should the unemployment rate ease to 7.6 percent today and the BoE shift earlier its forward guidance, sterling can regain momentum. We see little value in a euro/sterling just below 0.85 and reiterate our medium-term view for a decline toward 0.80,' analysts at ING said in a note to clients.
Sterling was steady at $1.5886, close to a two-month low of $1.5854 hit after Tuesday's inflation data.
The jobs data is expected to show a further fall in the claimant count in October, while the ILO unemployment rate for September is expected to stay at 7.7 percent.
(Editing by Nigel Stephenson) Keywords: MARKETS STERLING/OPEN
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