The pound fell 0.3% against the dollar at $1.3805, and was poised for a similar weekly loss, which if sustained would be its worst since mid-June. The U.S. dollar gained 0.1% against a basket of currencies on Friday.
The pound fell slightly against the euro to 85.53 pence, moving further away from 3-1/2-month highs hit earlier this week.
Solid U.S. data and a shift in interest rate expectations after the Federal Reserve in June flagged sooner-than-expected hikes in 2023 have lent support to the greenback in recent weeks.
Against a stronger dollar, the pound struggled to gain ground on the back of growing market speculation that the Bank of England could halt its bond-buying programme early because of an unexpectedly sharp rise in inflation.
Investors were having to balance the prospect of tighter BoE policy, which is supportive for the pound, with concerns about the economic fallout from the rapid spread of the COVID-19 Delta variant and from the end of fiscal support measures such as the job furlough scheme, which will end in September.
“COVID cases are surging and the impact on the economy could prove more considerable than expected,” MUFG analysts wrote in a note. “The job furlough scheme unwind could therefore be more disruptive than expected.”
Market players on Friday said sterling was unlikely to see stellar gains without interest rate hikes, even with an early end to its bond-buying.
“As long as there is no mention of a rapid normalisation of interest rates, only limited sterling strength is justified,” Commerzbank analysts wrote in a note.
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(Reporting by Tom Wilson; Editing by Ana Nicolaci da Costa)