Sterling hit a one-and-a-half-month high against the euro on Monday, boosted by a shift out of the single currency as eurozone policymakers struggle to find a solution to the bloc's worsening sovereign debt crisis. The pound fell against the dollar, however, as sentiment stayed shaky on the view that a fragile economy will ensure UK interest rates stay low for a prolonged period.
The euro fell as low as 87.05 pence, its weakest since late May. The shared currency has already fallen more than 3 percent this month, retreating from a climb above 90 pence at the start of July.
It recovered to trade at 87.55 pence, down 0.2 percent on the day. However, renewed losses could see it target its 200-day moving average - currently around 86.65 pence - and then the late May low of 86.11 pence.
Sterling fell back towards the $1.60 mark, trading down 0.75 percent at $1.6010, with traders citing bids just above $1.60 as helping to limit losses.
The euro hovered near 87.48 pence, which technical analysts said was an important support level as it represented the 50 percent retracement of the euro's surge in October-December 2008, which culminated in a rise to around 98 pence.