Sterling steadied versus the euro on Friday as investors looked ahead to UK manufacturing data for clues on how soft the economy is and thus how far the Bank of England will need to cut interest rates this year.

The Purchasing Managers' Index for the manufacturing sector is seen falling to 52.5 in January from 52.9 the previous month. That would be its weakest reading since March 2006, although it would still leave the index in expansion territory above 50.

Worries about an economic slowdown have prompted the Bank of England to cut rates to 5.5 percent in December and markets are pricing in a further 100 basis points worth of easing this year, with the next move expected in February.

"The expectation is that the PMI will continue to decelerate and that will be in line with recent trends of weakening economic activity," said Jeremy Stretch, strategist at Rabobank.

"The outlook for the UK continues to deteriorate but that's largely incorporated in the price already, so it's a case of whether we need to further slash our growth forecasts. If not, then sterling might find a little bit of support." By 0811 GMT, the pound was steady at 74.72 pence.

It edged up versus a broadly softer dollar, to $1.9919, as investors speculated that U.S. non-farm payrolls data at 1330 GMT may bring more bad news on the economy.

In contrast to one 25 basis point cut from the BoE since September, the U.S. Federal Reserve has slashed rates by 225 basis points to 3 percent over the period, eroding the dollar's yield appeal.

Sourced by Reuters.