LONDON: Sterling rose against the euro on Friday, climbing towards 18-month highs hit a day earlier, with diverging interest rate outlooks expected to underpin the British currency in the near term.
While the European Central Bank declined to rule out quantitative easing on Thursday after imposing negative rates on excess cash parked with it, the Bank of England is likely to raise interest rates early next year.
That expectation has helped drive the pound 10 percent higher against a basket of currencies over the past year.
The euro was down 0.15 percent at 81.10 pence, having hit 80.64 pence - its lowest since December 2012 - on Thursday after the ECB announced a series of policy-easing measures including rate cuts.
"What the ECB delivered yesterday was historic and the market is going to take some time to digest it," said Nawaz Ali, analyst at Western Union.
"But what it highlights is the problems facing the euro zone and when you put that against the UK economy, which is gathering momentum, you will expect the pound to gain."
Sterling was flat against the dollar at $1.6812, with much depending on how US jobs data, due later in the session, pans out. Analysts polled by Reuters expect US employers to have added 218,000 jobs in May, a step down from April's 288,000 job gain.
But estimates are even wider than usual, ranging from 110,000 all the way to 325,000.
Sterling barely reacted to data showing Britain's trade deficit widened to an estimated 8.924 billion pounds in April from 8.293 billion in March. Economists in a Reuters poll had forecast a 8.65 billion pound gap.
"The trade data could provide a less encouraging picture for the pound, but we would use setbacks to establish long pound positions," Morgan Stanley said in a note.
"Indeed, the move above the $1.6810 level provides the first signal that a bottom is being established."
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