Sterling strengthened on Friday, as investors betting against the currency locked in profits ahead of the weekend from the pound's slide to a 1-1/2 year low against the euro beyond 70 pence this week.
Despite Friday's modest retreat, the euro is on track for its biggest monthly percentage gain versus the pound for 4-1/2 years thanks to expectations for a narrowing interest rate differential between the eurozone and Britain. Troubles at UK mortgage lender Northern Rock and worries about the health of Britain's financial services and housing sectors have convinced investors that UK interest rates have peaked and many are now forecasting a cut in coming months. Given such fundamentals, analysts say more peaks in euro/sterling are on the cards, even if a pause comes first.
By 1401 GMT, the euro was down a third of a percent at 69.76 pence, off an earlier 1-1/2 year high of 70.20 pence. The euro has gained over 3 percent versus sterling so far this month - a big move for the usually range-locked pair, putting the euro on track for its biggest monthly percentage gain since February 2003.
On a trade-weighted basis, sterling opened at a 13-month low of 101.50 before recovering to 102.00. The pound was up 0.4 percent against the dollar at $2.0180.