Sterling fell broadly on Thursday, hitting a three-week low against the euro as a spike in oil prices drove investors into safer currencies and sparked concerns about the impact on an already fragile UK economy. Although sterling remained supported by expectations that the Bank of England will raise interest rates in the coming months, analysts said much of that was already priced in to the pound, leaving limited room for further gains.
Meanwhile, the euro gained sharply after European Central Bank policymaker Axel Weber boosted the prospect of rising borrowing costs in the eurozone, saying the only way for interest rates to go was up. The pound had hit a three-week high against the dollar on Wednesday after hawkish BoE minutes showed one more policymaker voted for a rate rise, but analysts said the pound's limited reaction suggested this had been expected.
The euro strengthened around 1 percent to 85.72 pence, its highest level in three weeks against the pound, surpassing its 100-day moving average at 85.37 pence. Against the dollar, sterling was down 0.6 percent at $1.6116, retreating from Wednesday's high of $1.6275. It hit a low for the session of $1.6085. Versus a basket of currencies, sterling fell to a more than three week low of 80.9. Traders said the break below $1.6136 against the dollar - the low struck on Wednesday - and $1.6100 could spur further stop-loss selling, with $1.6070 likely to be tested.
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