Sterling steadied below this week's 26-year highs versus the dollar on Friday, but stayed comfortably above the $2 mark, supported by Thursday's Bank of England rate hike and expectations for further tightening.
The pound's bullish yield outlook helped it withstand broad strength in the dollar after a stronger-than-expected US non-farm payrolls report eased concerns that the US central bank may cut interest rates this year.
Support for sterling also came from data released earlier on Friday showing British industrial output rose twice as quickly as expected in May. "The dollar has been trying to make a slight comeback after the reasonably stronger figures yesterday and today. After 25 basis points (British rate hike) yesterday there is probably a bit of profit taking (in sterling)," said Henry Wilkes, head of trading desk at Brown Brothers Harriman. "We are still expecting it to hold above $2 and probably the dollar to weaken again."
The BoE hiked rates to 5.75 percent on Thursday, widening the rate differential with the United States to 50 basis points. By 1407 GMT, sterling was steady on the day at $2.0101, off a 26-year peak of $2.0207 hit earlier in the week. The euro was up 0.2 percent at 67.72 pence.
Economists polled by Reuters after the BoE hike gave a median 55 percent chance of rates reaching 6 percent by the end of the year. Short sterling futures are more hawkish, fully pricing in one more hike and giving a 40 percent chance of a move to 6.25 percent by December.
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