Sterling edges up against weaker dollar ahead of key U.S. data

By Lucy Raitano

(Reuters) -Sterling edged up against a weaker dollar on Friday, staying near a three-year high scaled earlier in the week as the U.S. currency lost ground over U.S. President Donald Trump's announced sweeping tariffs.

At 1018 GMT, the pound was up 0.1% versus the dollar to 1.3292, though it lost a little ground on the euro, to trade at 85.26 pence to the common currency..

The dollar receded on Friday ahead of key nonfarm payrolls data due later in the session, falling even as China-U.S. trade tensions showed signs of easing.

Traders are now looking ahead to the Bank of England's next policy decision due next Thursday, with consensus betting on a 25 bps cut.

But some economists think the BoE will soon need to speed up its gradual approach to rate cuts as the global growth outlook darkens due to Trump's tariffs.

The impact of tariffs has already become apparent with a survey on Thursday confirming British manufacturing activity shrank for the seventh month in a row in April, also showing the impact of Britain's tax hike for employers.

"An investment environment characterised by elevated uncertainty, widening credit spreads and a positive correlation to a (U.S. dollar)-negative environment, in our view, favours a weaker (pound)," Danske Bank analysts wrote in a note.

Britain is hoping to soften the impact of U.S. tariffs by forging an economic agreement with the Trump administration and working to remove post-Brexit trade barriers with the European Union.

Elsewhere, UK politics is in the spotlight after Nigel Farage's right-wing Reform UK won a fifth parliamentary seat, its first post as mayor and many positions on local councils in early election results on Friday.

"The result underscores growing concerns within Labour about the rise of the populist right, with Reform making gains across England," said George Vessey, lead FX and macro strategist at Convera in a note.

(Reporting by Lucy Raitano; Editing by Joe Bavier)