LONDON: The British pound dipped on Friday and headed for a more than 1% drop over the week against the dollar after poor economic data and a rise in expectations that the Bank of England will cut interest rates.
Sterling is also headed for its ninth consecutive week of losses against the euro. Analysts say the outlook for the currency is worsening.
Government bond yields have dropped sharply in recent weeks as investors poured into government debt markets, betting that global central banks would move to ease policy in the face of stubbornly low inflation and slowing economic momentum.
This week, investors decided the Bank of England will not be immune from the pressure to ease and are now pricing in a rate cut over the next 12 months - relatively dovish comments from Governor Mark Carney during the week heightened such expectations.
Added to that, weak purchasing managers' index surveys suggested the British economy may have contracted in the second quarter, underlining economic fragility amid prolonged uncertainty about how and when Britain will leave the European Union. The UK's delayed departure date is scheduled for Oct. 31.
MUFG analysts said "considerably weaker" than expected growth was "increasing pressure on the BoE to shift to a more dovish policy stance following the lead of other major central banks."
"The darkening UK growth outlook and increasing likelihood of looser BoE policy is reinforcing our dovish outlook for the pound heading into the autumn period," the analysts said.
Sterling dropped 0.2% in early London trading to $1.2550 its lowest level since June 19 and leaving it down by more than 1% since Monday.
Against the euro the pound was little changed at 89.72 pence per euro, leaving it down 0.3% on the week.