By Samuel Indyk
LONDON (Reuters) - The British pound edged lower on Friday but remained close to a 10-month high against the dollar, supported by improving appetite for risk ahead of a big week of British data that could provide clues on the outlook for monetary policy.
The pound briefly hit its highest level since June 2022 at $1.2545 per dollar on Friday before easing back. It was last down 0.1% at $1.2511.
"The catalyst is positive global risk sentiment and broad-based dollar weakness as markets position for a Fed pause," said George Vessey, FX and macro strategist at Convera.
{{2126|The dodollar index, which measures the U.S. currency against six others including the pound, was last down 0.04% and was on track for its longest stretch of weekly losses since 2020, as traders bet on interest rate cuts from the Federal Reserve this year.
In contrast, markets price in around a 65% chance the Bank of England will raise rates by 25 basis points next month and expect another 45 basis points of tightening by year-end.
The BoE has raised its Bank rate 11 times in a row as it battles with sky high inflation, which rose to 10.4% in February.
Inflation data released next Wednesday will be closely watched for clues on the outlook for monetary policy, while labour market data (Tuesday), retail sales (Friday) and the flash S&P Global/CIPS purchasing managers index (Friday) could also drive movement in the pound.
"Expect a lot more focus on the BoE story next week with the release of jobs and inflation data," said Chris Turner, global head of markets at ING.
"For the time being, GBP/USD can continue to grind higher on the soft dollar story (support now 1.2480), while EUR/GBP should stay bid near 0.8800," Turner added.
The euro was up 0.25% against the pound at 88.45 pence.