LONDON: Sterling bulls licked their wounds on Friday and fought back from a mauling that has seen the currency suffer its longest losing streak against the dollar in six years.
With investors having pushed expectations of a UK rate hike back into next year, the British pound is well on track for its seventh weekly loss against the greenback, a run not seen since the financial crisis of August and September 2008.
But traders bought back some of those cheaper pounds on Friday, squaring positions ahead of potentially the most important market-moving event of the year: a keynote speech from US Federal Reserve Chair Janet Yellen at the Fed's annual gathering of central bankers in Jackson Hole, Wyoming.
"The pullback in the dollar overnight ahead of today's speech from Yellen is understandable following the strong gains recorded earlier this week," said Lee Hardman, currency analyst at Bank of Tokyo-Mitsubishi UFJ in London.
"But with the market pushing back expectations for rate hikes from the Bank of England back into next year, the pound will find it difficult to strengthen against the dollar."
At 0745 GMT sterling was unchanged on the day against the dollar at $1.6585, still close to Thursday's trough of $1.6561, its lowest since early April.
Poor wage growth -- average British pay is falling in real terms -- has developed into the main barrier to the BoE making good on longstanding expectations that it would raise rates either in November of this year or early in 2015.
Bank of England minutes on Wednesday showed the first dissenting votes at a policy committee meeting earlier this month but the majority said the inflation outlook was still too weak to justify raising borrowing costs.
From a technical perspective, this week's fall below the 200-day moving average -- the first break of the long-term technical indicator in a year -- suggests selling pressure on sterling against the dollar could persist.
"Following the latest and decisive break below the 200-DMA (now resistance at $1.6682) we see the bears in full control, shooting for a straight extension towards $1.6394," wrote JP Morgan technical analysts in a note on Friday.
Sterling fared better against the euro, however, which is under broad selling pressure as investors anticipate more monetary easing from the European Central Bank to counter the twin threats of recession and deflation.
The pound was on course for its biggest weekly gain against the common currency in over a month, with the euro trading slightly lower on the day at 80.00 pence. Analysts also noted that uncertainty over the Scottish independence referendum on Sept. 18 could keep the pound under pressure in the coming weeks, even though a vote to stay in the United Kingdom is widely expected.
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