Sterling broke a three-day winning streak against the dollar while dropping versus the yen as investors closely watch the U.S. rate path and authorities' interventions to support the Japanese currency.
The new British government's cautious fiscal stance helped ease investor concerns that had fuelled a political risk premium in sterling, underpinning the currency late last week despite the dovish message from the Bank of England's policy meeting.
Finance minister John Healey told cabinet ministers to make cuts in their budgets to help fund the government's new spending commitments, the Times reported on Friday.
The British currency dropped 0.50% against the yen to 211.11 after hitting 209.48, the lowest since March 5. It fell also last week as Tokyo and Washington stepped into the foreign exchange market to support Japan's currency.
Sterling was last down 0.18% at $1.3457, after reaching $1.35055 earlier in the session, the highest level since July 16.
The pound recorded its best monthly performance since April against the dollar and euro on Friday.
It inched 0.13% lower against the euro .
“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,” Barclays said in a research note.
The BoE kept interest rates on hold on Thursday as it waits for a keener sense of how much the Iran war will push up inflation.
Deputy Governor Clare Lombardelli, who some economists thought might also back a hike, said on Thursday that her decision to keep rates on hold had not been a hard 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 added.
