Sterling edged higher against a softer euro on Thursday after the European Central Bank signalled a eurozone interest rate rise earlier in the day was not necessarily the first in a series. The Bank of England left its key interest rate on hold at 0.5 percent.
The pound, however, was supported versus the euro as many in the market had been looking for ECB President Jean-Claude Trichet, at an ECB news conference, to indicate that more eurozone rate rises were in store. However, the euro stayed in a range between this week's low of 87.14 pence and its recent five-month high of 88.53 pence. It was expected to remain supported by the more favourable rate differential over the UK, with eurozone rates now at 1.25 percent.
Analysts and traders said the single currency may have room for more gains versus the pound because a weak UK economy could leave the BoE's Monetary Policy Committee (MPC) little scope to raise rates, despite UK inflation running well above target. The euro was down 0.2 percent on the day against the pound at 87.58 percent, though it stayed above its 21-day moving average at 87.39 pence. Traders earlier cited corporate selling of the euro against sterling.
Sterling was down 0.1 percent against the dollar at $1.6311. Although the BoE's decision to leave rates on hold had been widely expected, sterling dipped afterwards. Analysts said some investors had positioned for the slim chance of a BoE rate hike, given that three out of the nine UK policymakers had been voting for a hike recently.
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