LONDON (Reuters) - The pound rose towards the $1.31 mark on Friday as the dollar skidded lower and traders took stock at the end of a bruising week for the British currency.
Weak economic data and more political uncertainty around the government's Brexit position have hammered sterling in recent sessions.
But the pound rallied on Friday after U.S. President Donald Trump reinforced his criticism of the Federal Reserve's policy on raising interest rates and accused the European Union and China of manipulating their currencies.
The pound rose 0.6 percent to as high as $1.3105 <GBP=D3>, cutting its losses since Monday to one percent. It was unchanged versus the euro <EURGBP=D3> at 89.415 pence, close to four-month lows.
Sterling had dropped to as low as $1.2958 <GBP=D3> on Thursday, its weakest since early September, after worse-than-forecast retail sales data and slower-than-expected inflation rises combined with a dollar rally.
The EU on Thursday warned business to get ready for Britain crashing out of the bloc without agreed terms to cushion the economic disruption.
That warning comes amid ongoing concerns about Prime Minister Theresa May's ability to get Brussels - and her own party - to agree to her vision of life after the European Union.
With no major economic news on Friday and the British parliament headed for the summer recess next week, traders are looking to the Bank of England meeting in early August.
Despite the relatively weak run of economic news, the market is still pricing in a two-thirds chance of a 25 basis point rate rise in August, although that is down from nearly four-fifths at the start of the week.
"As the dust settles on an exceptionally busy week for both economics and politics, markets are still largely but not fully priced for an August rate hike," said Adam Cole, chief currency strategist at RBC.
"Our default position remains that rates will rise in August, despite the slightly softer CPI (inflation) data earlier in the week."
"Another new 10 month low at $1.2956 (on Thursday) opens up the prospect of further losses towards $1.2880, which needs to hold or we could well head back to the $1.2500 area," said Michael Hewson, analyst at CMC Markets.
(Reporting by Tommy Wilkes; Editing by Toby Chopra, William Maclean)
