Sterling hit two-month highs against the euro on Wednesday as signs grew that euro zone policymakers were worried by the single currency's recent strength.
European Central Bank governing council member Christian Noyer was the latest to comment on the euro, saying on Wednesday that monetary authorities remained vigilant about its level, and that intervention was always an option. Noyer also said there was no need to over-dramatise.
Wariness that the ECB might act to head off further rises in the single currency drove the euro lower against the dollar and the yen as well as against the pound, and sterling also lost ground to the US currency.
"The comments from the ECB, in particular Noyer, have caused some profit-taking in euro/dollar and also hit euro/sterling," said Jane Foley, currency strategist at Barclays Capital.
Sterling strengthened as far as 68.82 pence per euro, its best showing since November 11, and was trading at 68.94 pence at 1500 GMT. Sterling also tested 11-month highs against its trade-weighted index at 102.90.
But it hit the week's lows against the dollar at $1.8328, before recovering slightly to $1.8360, a loss of 0.60 percent from US closing levels and more than two cents below 11-year highs set on Monday.
The dollar got a further boost from a narrowing in the US current account gap in November to $38.0 billion, the narrowest monthly gap since October 2002.
Worries the United States will not attract investment flows to finance its current account deficit have knocked the dollar in recent months.
Euro zone rates are currently at two percent, and a minority of analysts expect the next move in euro zone rates to be a cut.
Strong UK employment data had little impact on the pound on Wednesday.
Unemployment in Britain fell 29,000 to a 2-1/2 year low in the three months to November, and the claimant count showed a fall of 8,300 in December.