The pound edged lower against the euro and the dollar in quiet trade on Friday as investors eyed a raft of UK data that are likely to provide more evidence of a weakening economy, adding weight to UK rate cut expectations.
The euro continued to hover not far below parity as it failed to extend Wednesday's falls against the pound, when year-end positioning caused it to pull back from its recent record high levels.
Data on the troubled housing market will be in focus on Friday, with Bank of England mortgage lending data due at 9:30 a.m. the latest Halifax house price survey at 10 a.m
The December purchasing managers' index for the manufacturing sector is also scheduled for release at 9:30 a.m., where a deepening contraction in the sector is expected.
The figures are likely to keep alive expectations that the Bank of England will continue to cut interest rates aggressively after slashing borrowing costs by 300 basis points to 2.0 percent between October and December.
"The data probably won't tell us anything we don't already know in terms of UK economic weakness, but with house price figures likely to be poor there may be a case for more negativity for sterling," Rabobank strategist Jeremy Stretch said.
"There is a risk of an upward correction in euro/sterling after the falls seen on New Year's Eve," he added.
At 8:34 a.m., the euro edged up 0.2 percent against the pound to 95.65 pence, leaving it not far below the record high of 98.05 pence reached on Reuters dealing systems on Tuesday.
Against the dollar, the pound lost 0.4 percent to $1.4544, though on a trade-weighted basis sterling rose to 74.9, coming off its recent record low of 73.3 reached on Tuesday.
Some good news on the UK emerged on Friday, however, with John Lewis -- seen as a barometer of retail spending -- reporting a surge in sales in the days before and after Christmas.
But analysts remain sceptical that consumer spending is set for a recovery, with retailers expected to continue to struggle in the coming months.
"We strongly suspect that the sales effect will be temporary and that retailers will face a desperately difficult 2009," Global Insight economist Howard Archer said.
"This will keep pressure on them to price competitively through next year, which will obviously impact on margins. As a result, many more retailers seem likely to go under in 2009," he added.
