LONDON (Reuters) - Sterling slipped against the dollar on Friday, setting it up for a weekly loss, as investors moved to the sidelines ahead of data that will provide fresh evidence on whether recent hawkish comments by policymakers are backed by an improving economy.
Among the raft of data, market analysts will closely watch the May industrial production figures due at 0930 GMT, expected to show 0.4 percent growth on a monthly basis. In April, industrial output grew at a tepid 0.2 percent, far lower than expectations.
Sterling was 0.1 percent lower at $1.2954 in early trade. Last week, it posted its biggest weekly rise in eight months after a number of policymakers spoke out in favour of a rate hike.
Surveys of purchasing managers this week pointing to a cooling economy have put some pressure on the pound this week, but it is still less than a cent away from nine-month highs reached against the dollar in May.
“If industrial production does not grow compared with the April level then Q2 will see this sector become a drag on overall growth, and the same is true of construction,” RBC Capital Markets strategists wrote in a morning note.
“With the April industrial production and construction weak, now may turn out not to have been the best time for some of the MPC to have turned hawkish,” they said.
Sterling managed to hold on to chunky gains notched up against the Japanese yen in early trades as the Bank of Japan expanded its purchases of government bonds, easing monetary policy at a time when British policymakers are debating tightening.
The BOJ said it would buy an unlimited amount of bonds, as it sought to put a lid on domestic interest rates pushed higher by the broad sell-off in developed market bonds.
Sterling rose to a fresh six-week high of 147.28 against the yen in early trades.
Editing by Andrew Roche