Sterling was steady against the euro above recent two-month lows on Wednesday as investors awaited Thursday rate decisions from the Bank of England and the European Central Bank. The BoE is expected to hold rates steady at 4.5 percent and the ECB is expected to stand at 2.75 percent.
But sterling has been under pressure against the euro in recent days from expectations the ECB will signal near-term rate rises at its news conference, while UK rate rise expectations have eased. "We are at a crucial stage with regard to the BoE," said Ian Stannard, currency strategist at BNP Paribas.
"Going forward, there is a possibility we may start to hear more hawkish noises from them, about the rise in commodity prices and the effect on import prices."
Nickel hit a record high late in the European session on Wednesday.
Sterling was trading at 69.32 pence per euro at 1420 GMT, compared with two-month lows of 69.58 pence set on Monday.
Sterling fell two thirds of a percent on the day against the dollar to the week's lows at $1.8334 as the dollar gained broadly on strong data on the US private sector job market in June, seen as an indicator of US jobs data due on Friday. Some analysts said profit-taking was setting in from the euro's recent highs against the pound.
"Our financial fair value model for euro/sterling shows overvaluation has shifted to extreme territory as of yesterday's close (69.33 pence)," said analysts at Barclays in a client note. "Any signal that the ECB remains cautious and gradualist in its approach will be very negative for euro/sterling, especially given our valuation concerns."
Sterling showed little reaction to news the UK services sector PMI index eased to 58.7 in June from 59.2 in May, slightly below forecast. The British Retail Consortium shop price index fell 0.20 percent year-on-year in June, after dropping 0.48 percent in May. Ahead of the BoE decision at 1100 GMT on Thursday, UK industrial production and manufacturing output data for May is due at 0830 GMT.