LONDON: Sterling fell to a 4-1/2 month low against the euro on Wednesday on steady demand for the single currency from a sovereign buyer for month-end requirements, traders said.
While the buying is routine, many traders were caught short by the sustained nature of the order and were left scrambling to buy euros to cover positions, traders added.
As a result, sterling remained broadly under pressure before a Bank of England meeting on monetary policy. The BoE's monetary policy committee may reaffirm its commitment to lower interest rates following its meeting on Wednesday and Thursday.
The euro rose to 87.27 pence, its highest level since mid-March, extending gains into a seventh session.
"While the price action suggests that there is possibly an order flow going through, I don't think the euro can rise much further from here against the pound on a fundamental basis," said Chris Walker, currency strategist at Barclays.
"The ECB is likely to be more dovish this week, while we do not expect much from the BoE until next week at the Quarterly Inflation Report."
Under new governor Mark Carney, the BoE may next week lay out a plan for setting out the direction of future monetary policy, tying future moves to a recovery in growth or the labour market.
Meanwhile, the ECB meets on Thursday and President Mario Draghi could flag a more dovish policy stance given a slight tightening in liquidity conditions.
Against the dollar, sterling was lower at $1.5225, recovering from a session low of $1.5200. It shrugged off a mixed bunch of domestic data which included a sharp drop in UK shop prices
The pound's recovery against the dollar was mainly due to investors cautious about the dollar before a Federal Reserve statement later in the day. The Fed is likely to reassure markets that rates will stay low, even if it scales back stimulus this year.
In addition, US gross domestic product (GDP) data due later on Wednesday are expected to show growth slowed to an annualised rate of just 1.0 percent in the second quarter, hardly a sign of a runaway recovery.
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