Sterling fell slightly versus the euro on Friday and ended the week down versus the dollar as an interest rate cut from the Bank of England and weak economic data led investors to pare back positions in the currency.
The pound is less than half a penny away from an all-time low against the euro as analyst expectations of further interest UK rate cuts next year dent the currency's yield appeal. The BoE cut rates on Thursday for the first time in two years which led the pound to fall to its lowest since late September versus the dollar.
Some 55 of 62 analysts polled by Reuters expect at least one more cut by the end of the first quarter. However analysts said rate cuts were unlikely to bolster investor confidence in the UK economy. "I can see sterling losses starting to accelerate," said Simon Derrick, head of currency research at Bank of New York Mellon.
"The Bank of England is between a rock and a hard place. If it cuts rates it could lead to increased inflation and if it doesn't there's the risk that the economy could go into a nose dive." At 1534 GMT, the pound was steady at $2.0272, near Thursday's two-month low of $2.0179. The euro was up 0.1 percent at 72.26 pence just below the all-time high at 72.55 pence.
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