Sterling rose against the dollar on Tuesday, helped by a recovery in equities and with traders citing sovereign demand for the currency, but UK exposure to the eurozone debt crisis was seen hampering the pound's progress. Traders said sentiment was helped by a rebound in UK banking stocks after sharp falls the previous day
The pound was up 0.5 percent against the dollar at $1.6140 in afternoon trade, above Monday's low of $1.6005, with technical support seen from its 200-day moving average around $1.6054.
The euro was steady against the pound at 87.90 pence, off a seven-week low of 87.05 pence hit the previous day, when the single currency came under broad selling pressure. Support was highlighted at the 200-day moving average at 86.65 pence, while near-term resistance was seen as the 100-day average around 88.01 pence.
Further gains could see sterling target last week's high of $1.6195 but UK exposure to the eurozone crisis weighed on investor confidence. Sterling is seen vulnerable to renewed eurozone debt worries, particularly against the dollar and currencies such as the yen and Swiss franc, due to concerns about the health of the UK banking sector and Britain's close trade links with Europe.
Market players remained wary as European leaders struggle to reach agreement on a solution to the crisis ahead of a key meeting on Thursday which will attempt to finalise a second round of aid for debt-stricken Greece.