The dollar firmed after the Federal Reserve last night reiterated that inflation remains its primary concern, effectively ruling out a near-term interest rate cut. In a statement accompanying the expected decision to leave interest rates on hold at 5.25 pct, the Federal Open Market Committee acknowledged the threat posed by volatile financial markets and said downside risks to growth "have increased somewhat". These risks are not about to prompt a rate cut, however, as the rate-setting body stressed that the predominant policy concern "remains the risk that inflation will fail to moderate as expected". "The unchanged FOMC rate decision came as no surprise, but those looking for the Fed to be dovish in its stance, especially in the wake of the recent market turmoil were disappointed," said Mitul Kotecha at Calyon. "The dollar is likely to remain supported over the short-term, especially in the wake of the less dovish Fed statement, whilst pressure on interest rate markets will be retained as markets reassess easing expectations," he said. The euro fell to a five-day low against the dollar of 1.3720 usd, but sterling remained the weak spot, hitting its lowest level against the dollar in a month ahead of this morning's key Bank of England quarterly Inflation Report. The pound has been under pressure this week, exacerbated by yesterday's very weak retail sales survey from the British Retail Consortium which caused it to hit a two-and-a-half-month low against the euro. Focus this morning, however, will centre firmly on the Inflation Report release, where the Bank of England will set out its forecasts for growth and inflation which should provide clues on the interest rate outlook for the coming months. If the BoE signals that the market can expect another quarter point interest rate rise to 6.00 pct, the pound is expected to push back up. "Any sign of hawkishness in the BoE inflation report would likely halt the sterling/dollar pullback," said analysts at BNP Paribas.