LONDON - The pound firmed on Friday, heading towards a two-week high, ahead of the release of UK manufacturing survey data later in the day which may influence a central bank policy meeting next week.
UK flash composite PMI data for January is expected to show a slight expansion to 50.6 compared to 49.3 in December with the dataset the final major one before a Bank of England policy meeting on Thursday where recent volatile data has shifted market expectations of a quarter-point rate cut.
While money markets currently assign a 50% probability of a rate cut next week, that probability had jumped to a high of 70% on Monday after some weak data and dovish comments from policymakers.
But strong employment data on Tuesday knocked back some of those expectations, setting the stage for the PMI data.
"It may be up to the PMIs to tip the scale and seal the deal on how the Bank may act," said Charalambos Pissouros, a senior market analyst at JFD Group.
In early London trading on Friday, the pound edged 0.1% up at $.3135 and just below a Jan. 8 high of $1.3153 hit on Wednesday.
While it strengthened by a similar margin to 84.12 pence against the euro.
(Reporting by Saikat Chatterjee; editing by Philippa Fletcher) ((email@example.com; +44-20-7542-1713; Reuters Messaging: firstname.lastname@example.org))