Sterling hovered near an eight-week low against a buoyant euro on Thursday, with the single currency drawing support from a relief rally as Greece's parliament edged closer to approving tough austerity measures needed to avoid a default.
The common currency was also boosted by favourable interest rate differentials after European Central Bank President Jean-Claude Trichet reiterated his hawkish bias towards inflation, backing strong market expectations that the bank will raise interest rates next week.
While the eurozone prepared for another rate hike, data in the UK continued to point to a struggling economy and backed expectations that interest rates are likely to stay at a record low for the coming months. British consumer confidence fell in June, a private sector index showed on Thursday, while UK house prices were flat.
Still, improved risk appetite supported sterling and kept it away from recent five-month lows against the US dollar. Sterling was flat at $1.6065, off its five-month low of $1.5912 struck on June 28. Traders cited option expiries at $1.6120. The pound had received a boost on Wednesday after a poll showed higher UK inflation expectations, although that did little to alter the market view that interest rates will remain on hold. The Bank of England says inflation will fall in coming months and there are significant output gaps in the economy.
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