Sterling rose against a sluggish euro on Thursday as investors continued to diversify away from the single currency, while the pound was able to shrug off knee-jerk losses triggered by weaker-than-expected UK services data.
Large swathes of Britain's service sector suffered their first fall in output since April 2009 last month due to snowy weather and weak new orders, the Markit/CIPS services PMI survey showed on Thursday.
British GDP probably grew by just 0.4 percent in the last three months of 2010, lower than many economists have forecast and little more than half the 0.7 percent recorded in the third quarter of the year, survey compilers Markit said.
"There was an initial selloff in the pound but overall the market has taken the data with a pinch of salt," said Jane Foley, senior currency strategist at Rabobank.
"Weather-related components make it difficult to read much into the data and the market will be waiting to see if there's a bounce in the next month's reading," she said.
The euro traded down around 0.5 percent against the pound at 84.36 pence, close to its session lows of 84.29. It had risen to around 84.75 when the UK data was released. The euro was down 0.6 percent against the dollar at $1.3075.
The December lows were a possible target at 83.50, while the technical outlook was weakened by Wednesday's move below the 200-day moving average at 84.85. The pound pared earlier losses to trade flat versus the dollar at $1.5515. Traders said Asian demand had helped to underpin it on the day. Sterling had fallen around 1 percent on Wednesday.