Sterling slipped against the dollar on Friday to trade within sight of 8-month lows, hit by signs Bank of England officials were inching toward more UK monetary stimulus as investors watched events in the euro zone closely.
The pound, along with other perceived higher-risk currencies, jumped on Thursday when central banks stepped in to relieve stresses on dollar funding in Europe's banking system.
Dealers said focus would continue to be on events in Europe, with finance ministers meeting in Poland amid hopes U.S. Treasury Secretary Tim Geithner may prod them towards more aggressive action on the debt crisis.
Comments from British Business Secretary Vince Cable on the potential need for more quantitative easing to prevent weak demand threatening Britain's fragile economy echoed similar suggestions from Bank of England policymakers Charlie Bean and Martin Weale and put some pressure back on the pound.
Sterling was down around 0.2 percent for the day against the dollar at $1.5760 after rising to $1.5869 on Thursday in reaction to the co-ordinated central bank announcement.
It was back within sight of an eight-month low of $1.5706 hit on Wednesday when weak domestic data combined with negative risk sentiment surrounding the euro zone crisis.
"Comments on QE from Bean, Cable and Weale have put sterling a little on the back foot, but I think it should be well supported around $1.5700/1.5680," said Adrian Schmidt, currency strategist at Lloyds Banking Group.
Traders said a break of this week's lows could open up a deeper correction for the pound towards support at $1.5485, the 50 percent retracement of sterling's 2010-2011 rally.
A broadly weaker euro fell 0.3 percent against the pound to 87.54 pence having climbed to 87.90 the previous day. Technical analysts said the outlook for the euro had improved after a break above the 200-day moving average earlier in the week around 87 pence, while resistance was the 55-day at 87.85.
Bank of England policy minutes from this month's meeting will be watched next Wednesday for signs of whether greater emphasis was placed on the need for more monetary stimulus.
"The QE discussion is gaining momentum in the UK and is likely to keep GBP under pressure," said Morgan Stanley analysts in a note.
"Hence, the MPC minutes over the coming week are of importance. A shift to the dovish side is expected, but the market pricing may have gone too far at this point, in our view.
Markets expect interest rates to remain around historic lows at least until the end of 2012, with some further easing of policy also being factored in.
read more: Olympus Wealth Management
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