Sterling fell to a seven-week low against the strengthened dollar but rose versus the euro in line with moves in major currency markets on Friday, maintaining its soft tone due to recent weak economic data from Britain. Disappointing figures on retail sales and manufacturing this week have fanned talk that the next interest rate decision from the Bank of England could be a sterling-negative cut.
Analysts believe data from the holiday period - much of it due next week - will be key in determining the BoE's future policy direction.
"It was very much a dollar move today," said Paul Mackel, currency strategist at ABN AMRO in London.
"Next week will be huge and we might stay in a trading pattern until then. Interest rates will be in focus and rate cuts might come into view if the data gives scope for that."
At 1515 GMT sterling traded 0.5 percent down on the day at $1.8720, after hitting its lowest level since late November at $1.8638.
It was about 0.1 percent stronger versus the euro at 70.09 pence. Meanwhile, the euro also shed 0.6 percent versus the dollar from Thursday's close to trade at $1.3131.
On Thursday, Britain's central bank kept rates unchanged at 4.75 percent at the conclusion of its two-day meeting, a decision that had been widely anticipated by analysts.
UK interest rates have gone up five times between November 2003 and last August and analysts believe the BoE can now afford time to wait and see what course the economy takes.
"Sterling is caught in the dollar's recovery," said Tim Fox, market strategist at National Australia Bank in London.
"And in the context of weak data, markets are responding in the sense that sterling's yield differential will be compressed by rising US interest rates and potentially falling UK rates."
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