Sterling fell to a one-month low against the euro on Friday, hit by brighter data that bode well for the pace of the eurozone's recovery, although the rise in investors' appetite for risk drove it higher against the dollar.
Flash estimates of the Markit composite purchasing managers' index (PMI) for Germany, France and the euro zone as a whole all reached the boom-or-bust 50 mark, beating market forecasts and showing growth was likely in the third quarter.
"We saw a turnaround from nervous markets overnight, and the positive PMI, which exceeded expectations, provided an additional boost to sentiment," said Christian Lawrence, currency strategist at RBC Capital Markets. The euro rose to 86.78 pence, the highest since late July, according to Reuters data. Traders were targeting 87.00 pence, which would be the highest since early June.
By 1513 GMT, the euro was up 0.3 percent at 86.64 pence. The pound was up 0.2 percent at $1.6548 after hitting a high of $1.6625.
Sterling - already well off a 2009 high of $1.7044 hit in August - is expected to struggle going forward due to signals from the Bank of England of a far looser stance on monetary policy than market participants had earlier expected. The UK economy shrank 0.8 percent in the three months to June and economists predict a second reading next Friday will be unchanged, although some expect a modest upward revision.