LONDON, June 2 Reuters Sterling headed for its biggest oneweek rally against the dollar in six months on Friday, as U.S. interest rates looked increasingly likely to plateau sooner than UK rates.

With the allimportant monthly U.S. employment report due later in the day, activity in the currency market was subdued.

From a cable perspective, this release may extend the rally NFP miss or in line with estimates or cap upside should the report come in stronger than expected, IG analyst Warren Venketas said.

The pound has gained 1.5 against the dollar this week, the most since early December, and nearly 1.1 against the euro which would be its largest weekly increase in nearly four months.

The main driver has been a redirection of investor capital out of the safehaven dollar, now that lawmakers in Washington have passed a bill that would suspend the U.S. government39;s borrowing limit.

Juicing up that flow has been a series of signals from Federal Reserve officials this week that the central bank might stand pat when it meets on June 1314 to discuss monetary policy.

This has fed a sharp repricing in interestrate expectations. Traders now place a 29 chance the Fed will raise rates this month, compared with a 70 chance a week ago.

Meanwhile, as UK inflation remains stubbornly high, traders have reassessed the outlook for monetary policy in Britain too.

Money markets show markets are pricing for UK rates to peak at 5.32 by yearend, up from 4.50 now. A month ago, the…