Sterling hit a fresh seven-month low against the euro on Thursday as the single currency's overall strength prevailed due to growing expectations for a European Central Bank rate hike in May.
A recent wave of hawkish rhetoric from the ECB left investors pricing in an interest rate rise for May as a near certainty in short-term money market instruments.
This comes only days after the Bank of England signalled it would keep borrowing costs steady at 4.5 percent for now, with economists in a Reuters poll expecting the bank to remain on hold all year.
"I think the market generally likes the euro against just about everything," said Kevin Grice, economist at American Express Bank.
"It's really following on from (a strong Ifo survey) and the market now pricing ECB rates at 3.25 percent by the end of 2006."
By 1413 GMT, sterling had hit its lowest level since mid-August 2005 at 69.51 pence against the euro, trading around a quarter of a percent lower on the day.
On a trade weighted basis, sterling fell to its lowest level since July last year. But the pound remained 0.3 percent higher against the dollar, partially supported by upbeat UK numbers in early trade.
A survey from the Nation-wide building society showed British house prices jumped 1.1 percent this month, taking the annual increase to its highest in almost a year, suggesting a housing recovery is firmly back on track.
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