Sterling steadied versus the euro on Friday as investors looked to UK retail sales data for clues to how deep the economic slowdown is likely to be. Comments from BoE deputy governor John Gieve on Thursday -- stressing upside risks to inflation as well as downside ones to growth -- have cast doubt as to whether the market is too aggressive in pricing in a full point of interest rate cuts this year.

This has helped the pound recover from record lows versus the euro, putting it instead on track for its biggest weekly gain in percentage terms in over a year.

However, markets remain volatile and a weak December retail sales report at 0930 GMT could put the pound back under selling pressure.

Consensus is for retail sales to grow 0.2 percent on the month in December which will bring the annual rate down to 3.3 percent -- the slowest since January 2007.

"The comments from Gieve yesterday ... were perhaps not quite as dovish as the market had priced in, so that's acting as a little bit of a support," said Jeremy Stretch, strategist at Rabobank.

"But obviously the market will take on board those retail sales numbers... (including) the price deflator to see if any sales growth is coming purely at the expense of aggressive discounting which obviously is something which the MPC will be very watchful of."

By 0810 GMT, the euro was steady at 74.37 pence, almost two pence below Tuesday's record highs.

While markets have slightly scaled back expectations for BoE rate cuts, in the euro zone, in contrast, comments from ECB Governing Council member Yves Mersch this week have boosted expectations of monetary easing towards the end of the year.

Against the dollar the pound eased to $1.9680 but held well above 10-month troughs of $1.9482 set earlier this

Sourced by Reuters.