Sterling rose half a percent to a 2-week high against the euro on Thursday after the European Central Bank raised rates for the first time in five years, but made it clear it was not about to rush into further rate hikes.
The ECB raised interest rates by 25 basis points to 2.25 percent as widely expected, but ECB President Jean-Claude Trichet said the central bank had not decided ahead of time to engage in a series of rate hikes. Earlier in the session, sterling had fallen against the dollar and the euro after a British retail sales survey posted its lowest reading since 1983.
"Sterling was initially reacting to a very miserable number from the UK, but after the ECB rate hike, there was a knee-jerk reaction after the euro weakened against the dollar," said Lorenzo Codogno, European economist at Bank of America.
At 1530 GMT, sterling was at 67.79 pence per euro, close to earlier two-week highs of 67.72 pence.
Against the dollar, sterling held steady at $1.7278.