LONDON, July 25 (Reuters) - The pound fell slightly on Thursday but largely stayed above the fray that rocked other currencies, as investors increased their wagers on Bank of England rate cuts in 2024.
Sterling was last down 0.12% at $1.2891, slipping further away from a one-year high of $1.3044 hit last week.
It fell more against the euro, which was up 0.26% against the pound at 84.22 pence.
Traders on Thursday increased their bets on BoE rate cuts ahead of next week's decision, pricing in derivatives markets showed.
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Two interest rate reductions now fully priced in by December, while next Thursday's decision remains on a knife edge. British bond yields fell, weighing on the pound.
The shift was largely driven by a change in U.S. interest rate expectations after a string of cool economic data and comments from former Federal Reserve officials backing a cut.
Given the size and importance of the U.S. economy and dollar, changes in Fed expectations tend to impact other developed economies.
"If the BoE does cut interest rate last week it could be a bit of a set-back (for sterling)," said Jane Foley, head of FX strategy at Rabobank.
"I think we are in for a little bit more volatility," she said. "But I do think sterling can continue to grind higher, particularly against the euro."
Foley said political stability after Labour's landslide general election victory could help boost the pound.
Sterling steered clear of the volatility seen elsewhere in markets on Thursday. Stocks tumbled after a tech-led sell-off in the U.S. on Wednesday, while the Japanese yen rallied hard as traders braced for shifts in interest rates.
The dollar index , which tracks the currency against six peers, was down 0.25% at 104.12 on Thursday.
Reporting by Harry Robertson; editing by David Evans
