Sterling steady at 10-week high in quiet end to busy week

LONDON, May 1 (Reuters) - TheMR pound held near a 10-week high against the dollar on Friday as traders digested a week of central bank meetings in which the Bank of England kept interest rates steady and warned of inflation risks stemming from the Iran war.

Sterling was little changed at $1.3606 and a touch softer against the euro at 86.32 pence, after jumping sharply against both on Thursday.

ING analysts said the previous session's unusual rally "may have been a function of month-end flows, where equity portfolio managers were rebalancing into UK asset markets after their underperformance in April."

Fund managers typically target fixed allocations across regions and periodically buy or sell assets to restore those weightings after market moves.

Liquidity on Friday was thin due to holidays across much of Europe, while the bigger medium-term focus for the pound was Thursday's BoE meeting.

The bank outlined a wide range of possible economic impacts from the Iran war, from scenarios that might require "forceful" rate rises to others that may warrant no increase at all.

Governor Andrew Bailey said policymakers faced a "difficult judgement call" over coming months, warning that waiting for clear evidence of inflationary pressures could leave the BoE acting too late.

He said he did not want to push back against market expectations for at least two rate rises this year and described policy as being on an "active hold".

Markets see a June rate hike as roughly a coin toss and price in two 25-basis-point increases across the BoE's three meetings through September.

But analysts say uncertainty is high.

"A world where the supply of commodities out of the Middle East starts to normalise in the coming weeks would mean very little chance of policy tightening this year, we think - and no chance of a June hike," said Morgan Stanley analysts.

"In a scenario where the current level of disruptions in the supply of oil and gas persist for months, and commodity prices readjust higher, hikes become likely."

The European Central Bank, Federal Reserve and Bank of Japan also all left rates steady this week.

(Reporting by Alun John. Editing by Mark Potter)