Sterling slips, but heads for best week vs dollar since mid-February

LONDON: Sterling's rise against the dollar stalled on Friday after sharp gains this week, as investors paused for breath before taking fresh positions ahead of UK data on jobs and inflation reports due next week.

The pound slipped against the euro after data showed UK construction output contracted in February, but the drop was mainly because of bad weather.

Most economists still forecast the economic rebound will gather momentum, and that is likely to keep alive optimism the Bank of England will tighten monetary policy earlier than had been expected Traders said they would wait for inflation data on Tuesday and the jobs report on Wednesday for more clues.

Any drop in inflation would ease pressure on the BoE to tighten policy; a strong performance in the jobs market and a further pick-up in wages could heighten expectations for a rate hike.

Sterling was down 0.1 percent against the dollar at $1.6765 after reaching $1.6821 on Thursday, within striking distance of its 2014 high of $1.6823 in mid-February.

Despite the drop on Friday, sterling was still on track for its best weekly performance in nearly two months. Part of the rise was driven by strong UK data and a weaker dollar, which ceded ground after dovish Federal Reserve minutes.

"We are seeing a bit of a fightback from the dollar, which is impacting sterling," said Simon Smith, head of research at FxPro.

"Sterling, having moved higher, is likely to stay in a $1.67-$16850 range unless the data from the UK surprises."

Traders also pointed to resistance on the trade-weighted sterling index around 86.40, a level it bounced off twice in recent weeks. The euro was up 0.15 percent at 82.85 pence, extending its recovery from a one-month low of 82.315 earlier this week.

Traders said expectations of quantitative easing will check gains in the euro, but the common currency is unlikely to fall much unless the policy measures are taken.

European Central Bank President Mario Draghi, speaking in Washington, restated the bank's view that much of the fall in inflation is due to supply-driven falls in food and energy prices rather than poorer demand.

"Only a move below the March lows at 82.05 pence, argues for a move towards the lows this year at 81.58," Michael Hewson, analyst at CMC wrote in a note.

"The resistance at the 200 day moving average at 84.10 remains a key obstacle to further gains."