The pound has fallen eight cents since mid-April, shrivelling year-to-date gains to less than half a percent for what had been one of the best-performing major currencies.

Weaker-than-expected GDP data last week and disappointing services sector numbers this week have all but convinced markets that the Bank of England will refrain from raising interest rates at its policy meeting next Thursday.

Market expectations of a rate hike have fallen from more than 90 percent in early April to 10 percent today and, combined with a rally in the dollar, have encouraged traders to sell sterling.

"The pound is probably trading where it should be, but there is a fair bit of downside risk around," said Paul Bednarczyk, Head of G10 FX at Continuum Economics.

He noted that the pound had failed to bounce even after the ruling Conservative Party polled better than expected in local election results held across Britain on Thursday.

Sterling was down 0.2 percent at $1.3550, slightly above its four-month low of $1.3537 reached on Thursday.

Against the euro, sterling traded flat at 88.31 pence as the single currency dropped more broadly.

This week has also seen the re-emergence of worries about Britain's negotiations with the European Union over their divorce, scheduled to happen next year.

Senior lawmakers who back Brexit this week demanded that Prime Minister Theresa May drop a proposal for a customs partnership with the EU once it leaves the bloc, reigniting concerns about the talks and adding to market expectations that the BoE will leaves rates unchanged.

"It's going to take a lot of persuading, especially after the data, for the bank to pull the trigger (and raise rates)," said Bednarczyk.