LONDON: Sterling resumed its gains against the euro on Thursday as the single currency came under renewed downward pressure due to concerns about the Russian-Ukraine conflict, which is likely to be a drag on the euro zone economy.
"The Ukraine headlines dragged the euro lower," a spot trader based in London said. "There have been expectations of routine month-end demand for the euro, but in any case, a bounce in the euro is being used as an opportunity to build fresh short positions."
Ukrainian President Petro Poroshenko called an urgent meeting of Kiev's security and defence council to decide the next steps to take in the crisis after he said Russian forces had been "brought into Ukraine."
The euro has struggled for most of this week on speculation the European Central Bank will resort to asset purchases, or quantitative easing, to revive the euro zone's economy.
That had helped widen interest rate differentials in favour of sterling fixed-income assets, which in turn pushed up the pound to a two-week high against the euro.
The euro was last trading 0.25 percent lower at 79.41 pence , having hit a two-week low of 79.38 earlier in the day. The euro has shed nearly 1 percent since ECB chief Mario Draghi flagged the possibility of more monetary stimulus at Jackson Hole last Friday.
The pound was flat against the dollar at $1.6585, holding its ground amid robust economic data from Britain.
The Confederation of British Industry's distributive trades survey's retail sales balance rose to +37 in August, its highest level since February, from +21 in July and well above economist forecasts of +27.
"Today's data should be slightly supportive for UK rates and sterling. The euro/sterling at 79.80/90 looks the sell zone," ING said in a note.
British government bond prices rallied along with German Bunds and U.S. Treasuries, with long-dated gilts outperforming other maturities.
At 1357 GMT, the 30-year gilt yield was down 2 basis points on the day at 2.970 percent, having earlier touched 2.957 percent - its lowest level since May last year.
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