Sterling hit a 3-1/2 month high against the beleaguered dollar on Friday but weakened to match the previous day's 10-month low against the euro after a poor reading in British industrial output. The headliner grabber of the session was the dollar's tailspin down to a record low of $1.2950 per euro as it fell prey to concerns about the US current account deficit.
The move lifted the pound half a percent on the day to a peak of $1.8556, helping to offset pressure earlier in the session from the euro. The single currency drove the pound to 69.99 pence before it recovered to stand unchanged on the day at 69.77 by 1700 GMT.
"Sterling has managed to prevent itself from slipping through the 70 pence level which is a big psychological support but the primary driver is whether the dollar carries on falling against the euro," said Philip Shaw, chief economist at Investec in London.
"Poor industrial production data gave sterling a knock."
Industrial output in Britain fell for the fourth month in a row in September, suggesting third quarter growth may be weaker than estimated. Output was down 0.4 percent on the month, confounding forecasts for a 0.3 percent rise.
UK consumer insolvencies hit a record high in the third quarter this year suggesting that 5 rate hikes in the past year are hitting overextended households hard. Data earlier in the week also showed the housing market, which is a key driver of consumer spending, was slowing down.
All eyes are on the Bank of England next week when it publishes its quarterly inflation report. The Bank was in the vanguard of raising interest rates among major economies and the prospect of higher rates had made sterling a desirable buy in the earlier part of the year.
Now analysts say one more rate hike may be likely early next year but much will depend on the Bank's new forecasts for inflation and growth next week.