LONDON: Sterling edged higher against the dollar on Friday as a rally in greenback which has been fuelled by rising US Treasury yields eased and the effects of another downgrade threat to the UK's sovereign rating petered out.
A lack of UK data left the pound susceptible to swings in other major currencies, with US inflation data seen as a potential catalyst for further dollar strength.
Sterling was up around 0.1 percent for the day against the dollar at $1.5727. It was well above a 7-week low of $1.5603 hit at the beginning of the week after strong employment data in the US boosted the dollar broadly.
"Since that US jobs data sentiment has changed towards the dollar against the other G4 currencies, that is to say sterling, the euro and the yen," said Ankita Dudani, currency strategist at RBS.
"If US CPI provides an upside surprise today it will further support US rates and suggest that the positive US dollar theme is here to stay," she added.
Traders reported offers in the $1.5740/50 area with stop-loss buy orders lurking above, while technical analysts highlighted resistance from the 21-day moving average at $1.5786.
The outlook for the UK economy remains uncertain with growth expected to stay sluggish, keeping the focus on whether the Bank of England will need to provide further stimulus through additional quantitative easing, a potential negative for the pound.
A weak picture for the economy has made investors cautious over holding sterling. It took a slight hit after ratings agency Fitch joined Moody's in placing the UK's AAA sovereign rating on negative watch on Wednesday, but strategists said a downgrade may not have a lasting impact.
"Everything is relative and given that we no longer live in a AAA world, any potential downgrade for the UK should have a negligible impact upon borrowing costs," said Commerzbank in a note.
The euro was down around 0.2 percent versus sterling at 83.05 pence, not far from a 4-week low of 82.955 hit earlier in the week, but traders said scope for further sterling gains in the near-term were limited.
"The euro zone is slightly out of focus for now and our traders think the euro will trade in an 82.90-83.40 range against the pound today," said Dudani.
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