By Ben Eisen, MarketWatch

NEW YORK (MarketWatch) -- The pound was set to mark its sixth weekly drop against the U.S. dollar on Friday, underscoring the British currency's retreat amid a dovish shift in monetary policy.

But the dollar swung lower against the Japanese yen after Ukraine said its military had destroyed Russian armored vehicles that had crossed the border.The dollar (USDJPY) bought Yen102.19, down from Yen102.46 late Thursday. The currency pair had climbed as high as Yen102.72 in morning trade.

The dollar showed little lasting reaction against the euro. The common currency (EURUSD) bought $1.3394, up from $1.3367

Sterling, however, was still feeling the effects of theBank of England's inflation report. While the report signaled the central bank was on track to raise its key lending rates in early 2015, Gov. Mark Carney walked back expectations by emphasizing that labor market conditions remained soft.

The pound made a run higher in June after Carney signaled rate hikes could come earlier than expected. But since then, shifting expectations of the timing have pushed sterling lower.

The pound (GBPUSD) bought $1.6686 on Friday, down slightly from $1.6688 late Thursday. That's down from $1.6796 a week ago, putting the currency right near its 200-day moving average.

"Sterling's drop this week has cemented its place as the worst-performing developed-world currency so far this month, said Jane Foley, senior currency strategist at Rabobank, in a note. "Investors have been scurrying to push back their forecasts of when the BoE may first start to hike rate amid accusations that Carney had misled them in previous speeches."

The dollar index (DXY), which measures the currency against a basket of its rivals, was down at 81.441 from 81.579.

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(END) Dow Jones Newswires

August 15, 2014 12:08 ET (16:08 GMT)

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