LONDON (Reuters) - Sterling held near seven-month lows on Friday as strong U.S. data and a hawkish Federal Reserve prompted investors to buy the greenback, while the Bank of England is expected to strike a cautious note at a review next week after some weak data.
The pound edged up to $1.3290, still near to seven-month lows of $1.3205 touched late last month.
Against the euro, sterling dropped 0.2 percent to 87.43 pence but remained above the 88-pence range it had traded at before the euro’s selloff on Thursday.
Focus shifts to the Bank of England’s meeting next week and Prime Minister Theresa May’s ongoing efforts to convince her colleagues about her plans for Brexit.
May saw off a parliamentary rebellion this week over parliament’s role in the Brexit process and ensured her government’s all-important EU withdrawal bill passed.
But her Conservative Party remains divided over how much of a say parliament should have on the final terms of a deal with the EU. That deal, which Britain and the EU need to agree before Britain’s exit in March, will define their future relationship.
“Our base case for Brexit remains a ‘decent Brexit’ where the UK leaves the single market and most likely also the customs union but strikes a free-trade deal agreement ... We expect a lot of noise ahead of the important EU summits later in June and in October,” Danske Bank said in a note.
Markets expect the BoE to keep rates on hold next week, but will be looking for any signs that the central bank is more comfortable with how the economy is performing after a difficult first quarter.
Swap markets expect the Bank of England to raise interest rates one more time before the end of 2018 with most participants leaning towards a hike in August.
Against the euro, the pound fell back after a rally on Thursday when the European Central said it would keep interest rates unchanged through the summer of 2019, sending the euro hurtling lower.
Data this week was mixed. UK retail sales this week assuaged concerns about a slowdown in the second quarter, although weaker-than-expected wage growth and industrial production numbers indicated the economy remains fragile.
“The domestic leg is struggling due to a combination of weak real wage growth limiting the scope for private consumption growth and Brexit uncertainties weighing on business investments,” Danske Bank said.
Reporting by Tommy Wilkes; Editing by Gareth Jones