LONDON: Sterling hovered near a four-week high against the euro on Wednesday, as investors were skeptical any concrete measures would be announced at this week's EU summit and sought alternatives to the vulnerable common currency.
The pound remained supported despite expectations that the Bank of England will implement more quantitative easing soon, with investor focus remaining on the euro zone debt crisis.
BoE Governor Mervyn King said on Tuesday that Britain's economic outlook had worsened markedly due to a deepening euro zone crisis, reinforcing expectations that policymakers will opt to expand asset purchases, possibly as soon as July.
The euro was up 0.1 percent against the pound at 79.98 pence, staying close to Tuesday's four-week low of 79.85 pence.
"In recent trading sessions, we have seen sterling outperform the single currency despite the fact that it is becoming abundantly clear that the BoE is likely to implement further asset purchase in early July," Michael Derks, chief strategist at F XPro, said.
He expected sterling would continue strengthening and that the euro would be trading below 75 pence over the second half of this year.
Most analysts expect the euro to continue dropping towards the 3-1/2 year low of 79.50 hit last month.
The EU summit will be held on Thursday and Friday, where the issues of joint bond issuance and banking union are expected to be discussed.
But Germany's Chancellor Angela Merkel on Tuesday dashed hopes for a move towards common euro zone bonds - seen by some economists as key to secure the future of the euro - saying Europe would not share total debt liability for as long as she lived.
The Confederation of British Industry will release a survey on retail sales at 1000 GMT, with the consensus in a Reuters poll forecasting the indicator would fall to 10 in June from 21 last month, reflecting a deterioration in sales.
Analysts said sterling was likely to show little reaction to the data given the market's focus on events in the euro zone. However, some warned that sterling could become vulnerable in the coming weeks against currencies other than the euro, given concerns about the UK economy's close ties to the currency bloc.
"The close financial and real economy links between the UK and the euro zone suggest that further escalation of the debt crisis and even a potential breakup of the currency bloc will fuel investor demand for safe-haven currencies like the dollar and the yen rather than sterling," Citi analyst Valentin Marinov said in a note to clients.
Against the dollar, sterling was down 0.15 percent at $1.5614. It stayed in a range below the mid-June high of $1.5781 and above last week's low of $1.5539.
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