LONDON, July 21 Reuters The pound was on track for its biggest weekly fall since February on Friday, as markets reacted decisively to signs that Britain may finally be turning a page on inflation.

Sterling was down 0.1 at 1.286 at 0912 GMT, putting it on track for a weekly fall of 1.74.

It climbed after data showed retail sales rose more than economists anticipated in June, but then slipped back as the dollar rallied.

The rise in the greenback was triggered by a Reuters report that Japan39;s central bank is leaning towards keeping its ultraloose monetary policy in place next week.

The euro was unchanged at 86.49 pence, and was heading for a weekly gain of 0.86 against the pound.

Sterling has risen sharply this year as the British economy held up better than expected, keeping inflationary pressures strong and the Bank of England on the ratehiking path.

However, data on Wednesday showed inflation fell more than expected in June to 7.9, down sharply from 8.7 in May.

That caused traders to reduce their bets on BoE rate hikes. According to derivatives prices, the market now thinks UK rates will peak at around 5.85, down from expectations of around 6.5 earlier this month. The bank rate is currently 5.

Significant sterling upside of late has been driven by the anticipation of yet further rate hikes from the Bank of England, and the inflation release may challenge the need for such committed hawkish policy, said Joe Tuckey, head of FX analysis at broker Argentex….