Sterling rose broadly after the Bank of England left rates on hold on Thursday, while other major currencies held steady ahead of speeches from euro zone and US central bank chiefs. Following a run of weak retail and consumer indicators, markets had ratcheted up expectations for a UK rate cut to 5.25 percent to over 60 percent ahead of the decision, from about 30 percent a week ago.
The focus now shifts to the European Central Bank, which is expected to keep rates on hold at 4 percent at 1245 GMT and to retain a hawkish bias at the 1330 GMT news conference with its president Jean-Claude Trichet.
"He is probably going to talk up the prospect for higher rates or at least bearing down on second round inflation pressures," said Jeremy Stretch, strategist at Rabobank.
"So the combination of that and the fact that the sterling bounce will probably be temporary - (because an on-hold BoE) is merely postponing what is an inevitable round of further cuts - will imply that the pull-back in euro/sterling won't necessarily be terribly long-lived." By 1214 GMT, the euro was down 0.3 percent at 74.68 pence, retreating from an earlier record high of 75.14 pence.
Against the dollar, the pound recovered from an earlier 10-month low of $1.9542 to trade at $1.9650. The euro was a touch firmer on the day at $1.4674 and 161.19 yen. However analysts say it will take a big shift in tone from Trichet - or a very dovish stance from Federal Reserve Chairman Ben Bernanke speaking at 1800 GMT - to convincingly knock euro/dollar out of current ranges around $1.46-1.48.
"The evidence of slowing growth in the euro zone is too strong and hawkish comments will not provide a lift for the euro. (But) if he's not hawkish it will be negative for the euro," said Michael Klawitter, currency strategist at Dresdner Kleinwort in Frankfurt.