The dollar was little changed against the yen and the euro amid speculation that Japan may seek support from other nations to stem its currency's recent rise to a seven-month high against the dollar.
The outlook for the pound brightened last week as reports highlighted rising manufacturing confidence, accelerating growth and robust domestic demand.
"Everybody's upgrading their forecasts for growth in the UK," said Derek Halpenny, a currency economist at Bank of Tokyo-Mitsubishi. "Growth is now on a sustained path."
On Friday, the pound was little changed at $1.5884 from $1.5877 late on Thursday in London trading. The pound was also little changed versus the European Union's single currency, leaving the euro at 0.6592 per pound from 0.6581.
Traders and economists will get fresh clues on the state of the housing market from reports due in the coming days from two mortgage lenders, Nationwide building society and the Halifax.
"General sentiment has been more buoyant in the housing market," reported Alex Bannister, the group economist at Nationwide. "That may potentially boost the wider economy."
Continued house-price inflation may fuel speculation that the Bank of England will raise interest rates in a bid to keep prices from rising too quickly. Higher interest rates could also benefit the pound by making deposits denominated in it more attractive to investors.
"Sterling could make some gains, certainly next year against the US dollar," said Jeremy Stretch, a currency strategist at NatWest Global Financial Markets. He expects the UK central bank to add 0.75 percentage points on lending rates in 2000.
Despite the yen's decline this week against the dollar, the Japanese currency has risen 1.7 per cent against the dollar this year. The yen is up 13.4 per cent versus the euro.
Those gains are a concern for Japanese officials because a stronger yen makes exports - one of the Japanese economy's few bright spots - that much more expensive overseas. Japan had already sold about $30bn worth of yen between 10 June and 21 July trying to weaken the currency, though it has climbed 6 per cent since the last intervention.
"The stronger yen would be problematic" for Japanese officials, said Michael Rottmann, a currency strategist at HypoVereinsbank in Munich. "Probably around 108 [yen per dollar] they'll have to step in [and sell the currency]," he said.
The yen has strengthened in recent weeks amid expectations that international investors will buy more Japanese stocks, given signs that the world's second-biggest economy is on the mend. Japan's economy expanded for the first time in six quarters during the January-March period.
"The Japanese market is looking more appealing than it has in a number of years," said Ben Shenton, who helps manage pounds 3.5bn at Quilter & Co in Jersey.
"Governments can try to intervene in the market, but at the end of the day, natural flows tend to win out."Reuse content