LONDON: Sterling edged back towards a 15-month high versus a struggling euro on Thursday as investors shied away from the single currency on worries over euro zone sovereign funding, while the pound was holding within its recent range versus the dollar.
Against the euro sterling was supported by the perception that the UK economy will outperform the euro zone, which is heading for recession amid huge uncertainty over the ability of highly indebted countries within the bloc to raise funds.
The euro was down 0.1 percent for the day at 82.79 pence after sliding to its lowest since September 2010 on Wednesday at 82.64.
Traders said the euro's break below its 2011 low of 82.85 on Wednesday was key, although a daily close below that level was still awaited.
"For EURGBP the issues are about the euro rather than sterling and the euro is clearly in a downtrend," said Adrian Schmidt, currency strategist at Lloyds Banking Group.
"We're waiting to see whether some sort of confidence can return from debt auctions in France today and Italy and Spain next week," he added.
France plans to raise up to 8 billion euros in 10- to 30-year debt a day after a subdued German bond auction the previous day while there are major concerns about Spain and Italy's ability to raise funds in coming months.
Sterling was down slightly on the day against the dollar at $1.5594, with traders reporting decent demand in the 1.5580 region and stop-losses below. Overall the pound was still confined within last month's range of $1.5361-$1.5775.
UK service sector PMI for December is due to be released at 0928 GMT with economists in a Reuters poll looking for a reading of 51.7 versus the previous month's 52.3.
Data on Tuesday showed British manufacturing was showing signs of stabilising after a two-month decline as orders from China and Germany picked up, although the risk of another recession persists.
"The December PMI data for manufacturing and construction out so far this week has beaten expectations on both counts and the hope is that today's services PMI will similarly outperform," said Michael Hewson, analyst at CMC Markets.
The fragile state of the British economy has led many in the market to believe the Bank of England will have to increase its asset purchase programme this year, although most see next week's monetary policy decision as too soon for another round of quantitative easing to be introduced.
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