Sterling hovered close to its highest in nearly 10 months on Thursday and looked set to benefit from further signs that eurozone policymakers are struggling to tackle the region's debt crisis. The pound also strengthened versus the dollar, recouping some losses after hitting a two-month low on Wednesday.
Traders cited demand for sterling from UK corporates repatriating ahead of the year-end, which they said may be having a bigger impact due to current thin liquidity in the market. The euro was steady against the pound at 83.95 pence, just holding above Wednesday's trough when it sank to 83.72 pence, its lowest level since mid-February.
Traders said there was interest to sell into any rally but the single currency was likely to find strong support from corporate demand around 83.33 pence, equivalent to the 1.20 euro level in sterling/euro.
"The 1.20 level in sterling/euro is a big level of resistance. A lot of orders from UK importers come in around there," said Lee McDarby, head of dealing for corporate and institutional treasury at Investec. Sterling rose 0.1 percent on the day versus the dollar to $1.5484, having dropped to a two-month low of $1.5408 in the previous session.
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