Sterling firmed against the euro but dipped versus a broadly stronger dollar on Friday with outside factors dominating sentiment, as robust US jobs and manufacturing data supported the greenback. Underlying sentiment was still solid for the pound as investors expect British borrowing costs to be raised to 5.75 percent later this year boosting sterling's yield appeal.
That view was backed by data showing British manufacturing activity accelerated unexpectedly in May, driven by the strongest growth in production in eight months and as factory gate inflation picked up to equal a record high.
But the impact of the data was swept aside as expectations for a US interest rate cut this year were pared back further after data showed US manufacturing grew to its highest level since April 2006 in May, while job creation was also strong.
"Cable (sterling/dollar) fell as stronger than expected ISM and payroll numbers gave tentative signs that US growth is holding up better than was thought. The probability that there will be an interest rate cut in the US is gradually receding," said Paul Robson, currency strategist at Royal Bank of Scotland. By 1450 GMT, the pound was down 0.1 percent on the day at $1.9786. It was up a quarter percent against the euro at 67.77 pence as the single currency dropped in the face of a broadly stronger dollar.