Sterling recovered slightly against the dollar on Friday after reaching a two-week low in the previous session and as investors awaited the start of a meeting of the Group of Seven industrialised countries in Tokyo.

On Thursday the pound fell sharply against the dollar after the Bank of England cut interest rates by 25 basis points to 5.25 percent, sparking expectations of more rate cuts in the near future and prompting investors to pull out of positions.

"Typically when you see a sharp move, as yesterday, there's always going be a temptation for traders to lock in profit and take the money and run," Simon Derrick at Bank of New York Mellon said. "Cable's close to some major levels. We're coming close to the lows we were testing in mid-January and people should be cautious about staging an assault on those levels."

At 8:37 a.m., sterling was up 0.3 percent against the dollar at $1.9475, pulling away from the two-week low of $1.9386, while the euro slipped 0.4 percent to a 1-1/2 week low of 74.29 pence.

The euro remained under pressure after European Central Bank President Jean-Claude Trichet said on Thursday that euro zone growth risks are to the downside, paving the way for lower interest rates this year.

The G7 meeting is due to start on Saturday. The spectre of a U.S. recession on top of a crisis in financial markets will test the limits of cooperation among the participants.

A G7 source said discussions on foreign exchange rates will be less important this time than that on policy responses to the deteriorating global economic climate.

Sourced by Reuters.