Sterling fell versus the dollar on Friday as investors expect the Bank of England to cut interest rates further next year, denting the currency's yield appeal after it eased monetary policy the previous session.

The BoE cut rates on Thursday for the first time in two years which led the pound to fall to its lowest since late September versus the dollar and 55 of 62 analysts polled by Reuters expect at least one more cut by the end of the first quarter.

"We have felt as though the pound has been vulnerable for some time and the decision to ease monetary policy yesterday -- which not everyone was expecting -- has certainly weighed on it," said Phyllis Papadavid, currency strategist at Societe Generale.

At 0821 GMT, the pound was down 0.1 percent at $2.0239, near Thursday's two-month low of $2.0179.

The euro was steady at 72.15 pence and not far off the all-time high at 72.55 pence .

Prospects of lower rates are dimming sterling's attractiveness as a carry trade currency where investors borrow low yielding currencies like the yen to fund purchases of higher yielding assets.

Sterling was down a quarter of a percent at 225.06 yen.

The pound is also likely to suffer from generally higher risk aversion, and a view that the UK economy is set for a slowdown, analysts said.

"It's a double whammy, there are country specific risks and the appeal for the carry trade generally is challenging in the current risk environment which are both negatives for the pound," said Papadavid.

Source Supplied by Reuters