Sterling edged lower against the dollar and underperformed the euro as worries about the eurozone drove investors to shed exposure to riskier currencies, offsetting any relief seen after the Bank of England kept asset purchases on hold. As expected, the Bank of England voted to keep interest rates at a record low 0.5 percent and opted not to raise the amount set aside for the quantitative easing programme designed to breathe life into the country's fragile economy.
The decision lent little bias to markets which continued to trade in line with latest developments in the eurozone crisis, where investors sold into bounces in the euro on the long-term view that turmoil in the eurozone would continue. The euro was up 0.3 percent against the pound at 85.35 pence, having fallen to a fresh eight-month low of 84.86 pence earlier in the day. It recouped some of its steep losses made in the previous day when the common currency came under broad pressure after Italian 10-year bond yields breached 7 percent. Commerzbank technical analysts highlighted Wednesday's break below the euro/sterling 200-week moving average of 85.40 pence as a landmark development.
If this is sustained at Friday's close, the pair may trade down to 83.53 pence - a support line drawn connecting lows hit in mid-2008 and mid-2010. Below that, the 2010 low of 80.67 is a target in one to three months, Commerzbank said. Against the dollar, sterling was 0.1 percent lower at $1.5902, easing from highs above $1.5950 struck after the Bank of England announced its policy decision. Near-term support for sterling came at the 55-day moving average of $1.5845.