The pound was on track Friday for its best monthly performance against the dollar this year, driven by expectations that the Bank of England may need to maintain higher UK interest rates longer due to persistent inflation.
Data released on Friday indicated that UK house prices rose in May after two months of declines.
However, a separate report on U.S. inflation later in the day could have a more significant impact on currency movements.
Sterling was down 0.12% for the day at $1.2717 but was set for a 1.7% rise in May, its largest monthly increase since November’s 3.9% gain.
The pound reached a two-month high of $1.2801 on Monday and has since dropped to around $1.268. Analysts suggest any further declines should be limited.
“While these levels underpin (sterling), further range-trading is likely to be witnessed.
A drop below these lows would engage the April-to-May tentative uptrend line at $1.2628,” stated Axel Rudolph, senior financial analyst at IG.
Traders anticipate one rate cut this year from the Bank of England, though the possibility of a second cut remains uncertain.
Interest-rate futures show about 32.5 basis points of cuts priced in by December, down from just over 50 basis points a week ago.
Investors often monitor sterling’s performance against the euro for a more accurate gauge of sentiment towards the UK economy and its markets.
The euro was heading for its largest daily jump against the pound since early May after data showed euro zone inflation rose more than expected.
The European Central Bank is anticipated to deliver a rate cut soon.
The euro was last up 0.22% at 85.23 pence but was still on track for a third consecutive monthly decline against sterling and a yearly drop of 1.6%.
Later in the day, data is expected to reveal that the U.S. personal consumption expenditures (PCE) index, excluding food and energy prices, rose 2.8% in April, matching the increase in March.
Month-on-month, core PCE is anticipated to have risen 0.3%, according to a Reuters poll.