Sterling fell to a three-week low against the euro on Tuesday as investors bought the single currency to meet month-end commitments, while the soft UK economic outlook meant the pound also struggled against the dollar. A quarterly poll by the Confederation of British Industry showed business in Britain's dominant service sector shrank between June and August and confidence dwindled as firms reported a lack of demand, suggesting that the recovery from recession will be long and arduous.
The euro was up 0.5 percent against the pound at 79.50 pence, having risen to a three-week peak of 79.55. The euro also gained against the dollar as investors grew a bit more confident that the European Central Bank would deliver bold measures next week to stem the currency bloc's debt crisis.
Against the dollar, sterling was flat on the day at $1.5805, staying well below last week's three-month high of $1.5912, despite buying from sovereign investors. Technical chartists highlighted strong resistance around $1.5910, the 61.8 percent retracement of the late April to early June fall from above $1.63 to around $1.5270. The ECB said its chief Mario Draghi will not attend the annual Jackson Hole meeting of central bankers at the end of this week due to a heavy workload. The ECB holds its next policy meeting on September 6. Speculation is mounting that it will announce a bond-buying programme to lower borrowing costs for Spain and Italy. Any such measure would see the euro rally against most currencies, including sterling, traders said.