Pound hits 2 month high against dollar

By Michael Taylor

LONDON (Reuters) - The pound edged up to a two-month high on Friday versus a dollar weighed down by scaling back of U.S. rate hike expectations, but weakened versus the yen and the Swiss franc.

Inflationary pressures played heavily on investors' thoughts as U.S. crude climbed to a record $142.26 a barrel.

Inflation poses a big headache for the Bank of England as its ability to curb prices with interest rate rises is limited by slowing growth -- a potentially painful mix for the economy and thus for sterling.

A downward revision to first quarter growth on Friday highlighted the pressures facing the Bank, while the European Central Bank's signals that it will fight inflation with a July rate hike are supporting the euro.

"The market is now starting to price the possibility of a combination of slower global growth combined with building inflationary pressures," said Lee Hardman, currency economist, at BTMU.

"Next week I'd expect continued risk aversion to be the main theme again. The markets are starting to take out expectations of monetary tightening in the U.S. post-FOMC statement."

Risk aversion sent the pound to a three-week low versus the safe haven Swiss franc, at 2.0201 francs. It also hit its lowest in over a week at 210.64 yen.

However the pound gained versus a broadly softer dollar, edging up to a two-month high of $1.9921.