Sterling heads for third week of losses as dollar stands tall

By Tom Wilson

LONDON (Reuters) -Sterling fell on Friday in the face of a strengthening U.S. dollar, with the British currency giving up gains made a day earlier after the Bank of England raised interest rates.

The pound fell as much as 0.5% against the dollar to $1.2290, off from a one-week high of $1.2405 touched a day earlier. It was last at $1.23015 and heading towards a slight loss for the week, which would be its third straight week in the red.

The dollar index, which measures the currency against six peers including the yen, rose as much as 0.5% to 104.29, with the Japanese yen falling 2% after the Bank of Japan kept its ultra-easy monetary policy unchanged.

Against the euro, sterling was down 0.1% at 85.50 pence, regaining some ground after losing around 0.3%.

“It’s very much a dollar move,” said Michael Hewson, chief market analyst at CMC Markets, of sterling’s performance.

The pound had on Thursday gained 1.4% versus the dollar, buoyed by the Bank of England’s 0.25% interest rate rise.

The increase surprised some investors who had expected a more aggressive move to douse soaring inflation in Britain, though most predicted it would support the pound with further rate hikes likely through the year.

“The BoE’s (comparatively low) 25 basis point speed is in principle not a GBP disadvantage,” analysts at Commerzbank wrote in a note. “Because it formulated its will to hike further yesterday in a marginally more convincing manner, the pound was able to rise correctly.”

(Reporting by Tom Wilson; Editing by Emelia Sithole-Matarise and Angus MacSwan)