Sterling slipped against a firmer euro on Wednesday as investors pared short positions in the single currency ahead of an ECB policy meeting, while strong UK manufacturing data supported the pound versus the dollar. The European Central Bank is expected to keep interest rates unchanged at Thursday's meeting and may also announce the extension of crisis support measures beyond their expiration in mid-January.
The euro traded at 84.05 pence, up around 0.7 percent on the day. It had fallen to as low as 83.34 earlier in the session, which was its lowest since September 20. Sterling traded virtually flat versus the dollar at $1.5555 after rising to a session high of $1.5649 as data showed UK manufacturing unexpectedly expanding to a 16-year high last month. The pound had fallen to a two-month low of $1.5485 on Tuesday as the dollar made broad gains on increasing risk aversion. "I think this bounce can see it rise to $1.57-1.58 levels where it could run into renewed selling." said Ian Stannard, senior currency strategist at BNP Paribas.