Sterling gained against a broadly weaker euro on Thursday after a European Union deal to support Greece was seen short on detail, but stayed weak versus the dollar as a dovish Bank of England report weighed on sentiment.
Investor optimism after EU leaders announced the Greek rescue plan pushed the pound to a three-week low versus the single currency. However, the euro turned lower across the board as markets awaited official details of the deal.
"The euro/sterling move is on Greek news flow, but I'm not sure sterling is a safe-haven from eurozone debt woes," said Mark Oswald at Monument Securities.
Sentiment towards the pound remained shaky and it stayed weak against the dollar as Wednesday's BoE report suggested the door remained open to more asset purchases under quantitative easing and that rates would stay low for some time.
By 1618 GMT, the euro fell 1 percent on the day to 87.16 pence, well below an earlier three-week high of 88.41 pence. Sterling was up 0.4 percent against the dollar at $1.5650, pulling away from the year's low of $1.5535 hit on Monday.
Traders said euro/sterling had also been hit by UK clearer sales, said to be related to a corporate order. Sterling also gained support from persistent Asian sovereign buying against the US dollar, they said. Sterling's trade-weighted index earlier fell to a one-month low of 79.5, before later recovering to 80.2, up on the day.
Analysts said sentiment towards the pound remained negative after the BoE forecast on Wednesday that inflation would be well below its 2 percent target in two years if interest rates rise as the markets currently predict. Sterling lost more than 1 percent versus the Australian dollar after strong Australian jobs data reinforced expectations for Australian interest rates to rise further, emphasising the two countries' diverging rate outlooks.
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