Sterling set for second weekly loss as data fail to impress, 'sausage war' weighed

By Joice Alves

LONDON (Reuters) -The pound fell 0.5% on Friday and was on track for its second consecutive weekly loss versus the dollar after data releases that failed to impress investors, while post-Brexit trade troubles over Northern Ireland also soured the mood.

Britain's GDP was a record 27.6% higher in April than a year earlier when the virus was rampant. But economic output remained 3.7% below its pre-pandemic levels. Data also showed an unexpected drop in industrial and construction output in April.

Against the dollar, sterling was down 0.5% to $1.4107 at 1450 GMT, after falling to a one-month low of $1.4071 on Thursday. It was 0.15% higher versus the euro at 85.75 pence, after touching a one week high.

"UK GDP data release this morning, while strong, did not quite meet market expectations. Also, reports that the re-opening of the economy could be delayed beyond June 21 should limit enthusiasm for GBP versus the euro," said Jane Foley, Head of FX Strategy at Rabobank.

England was set to fully lift lockdown restrictions on June 21, helped by a swift vaccine rollout that has brightened Britain's economic outlook.

But with the Delta variant of COVID-19 first detected in India spreading fast and accounting for over 90% of new cases, Prime Minister Boris Johnson is expected to decide on Monday whether to delay the reopening.

Sterling has been under pressure this week after Britain and the European Union failed to agree on solutions to post-Brexit trade problems in Northern Ireland.

The row has been dubbed the "sausage war" by British media because it affects the movement of chilled meats.

The pound won back a little ground on Thursday as investors expected the Federal Reserve to keep its policy unchanged as a U.S. inflation surge is seen as temporary; while the European Central Bank maintained an elevated flow of stimulus, as expected.

Sterling has also found some support from U.S. President Joe Biden's key messages to Britain in his first meeting with Johnson, Rabobank's Foley said.

They "were more about the special relationship between the U.S. and the UK and less about issues related to the N. Ireland protocol," she said.

Biden and Johnson met in Cornwall, southwest England, before the start of the G7 Summit on Friday.

(Reporting by Joice Alves Editing by Emelia Sithole-Matarise and Mark Potter)