Jan 27 Reuters Sterling edged lower on Friday but was not far from its highest level in over seven months against the dollar.

Investors expect the British economy39;s slowdown to end the Bank of England BoE tightening cycle soon, in a move which might weaken the pound in the shortterm.

British privatesector economic activity fell at its fastest rate in two years in January, a survey showed on Tuesday.

Some analysts flagged substantial shortsterling positioning on expectations for a turn in the BoE cycle.

The BoE looks on course to raise its main interest rate by half a percentage point to 4 on Feb. 2, but economists will be looking for signals that this 10th consecutive rate rise will be one of the BoE39;s last.

Sterling was down 0.25 versus the greenback at 1.238. It hit its highest since June 10 at 1.2447 on Jan. 23.

The U.S. dollar index was roughly stable, with traders bracing for a critical week when the central banks responsible for the greenback, the pound and the euro will meet.

The pound was down 0.2 against the euro at 87.95 pence per euro.

However, some analysts are bullish on sterling in the medium term as, they said, markets already priced in the worstcase scenario for the British economy.

We may have reached or are close to reaching 39;peak pessimism39; in regard to the UK, and that GBP could see better times ahead, said Derek Halpenny, head of research global markets at MUFG.

Fiscal credibility has improved, and in circumstances of declining…