Sterling snapped a three-day rally against the US Dollar and weakened against the Yen as investors monitored the outlook for US interest rates and remained alert to potential Japanese intervention in the currency market.
The UK government's prudent fiscal approach helped calm investor concerns that had previously added a political risk premium to Sterling, supporting the currency late last week despite the Bank of England's dovish policy stance.
Chancellor John Healey has instructed government departments to identify budget savings to help finance the government's latest spending commitments, according to a report by The Times on Friday.
Sterling fell 0.50% against the Yen to 211.11 after earlier touching 209.48, its weakest level since 5th March. The Pound also came under pressure last week after Japanese and US authorities intervened in the foreign exchange market to support the Yen.
Against the US Dollar, Sterling was last down 0.18% at $1.3457, having earlier climbed to $1.35055, its highest level since 16th July, Reuters reports.
The Dollar index was little changed, brushing aside the impact of lower oil prices as investors looked ahead to key US employment data later this week for fresh clues on the Federal Reserve's interest rate outlook.
On Friday, Sterling posted its strongest monthly performance against both the US Dollar and the Euro since April.
Yet it was marginally weaker against the Euro, slipping 0.13% at the time of writing.
“The Pound's negative risk premium closed somewhat further last week, albeit much less than we would have expected in light of the dovish lean of the Monetary Policy Committee’s remaining erstwhile hawk Deputy Governor Lombardelli and swing-voter Governor Bailey,” according to a Barclays research note.
The Bank of England left interest rates unchanged on Thursday as policymakers await greater clarity on the inflationary impact of the conflict in Iran.
Deputy Governor Clare Lombardelli, who some economists had expected to support a rate hike, said her decision to leave borrowing costs unchanged had been a straightforward one.
“With fiscal news likely to remain light and the window for carry potentially open throughout August, we take a small profit from our long Euro/Sterling recommendation,” Barclays went on to add.