Sterling fell to its lowest level against the euro in almost two weeks on Monday as investors booked profits on recent gains ahead of this week's Bank of England interest rate decision.
The pound also briefly climbed close to a two-month high against the dollar on the back of a broad dollar pullback, but lost ground later in the session on rates uncertainty.
Most analysts expect the BoE to hike rates on Thursday but a sizeable camp believes the rise will come a month or two later.
"The money market is pretty much pricing in a 25 basis point rise on Thursday," said Tom Vosa, market strategist at National Australia Bank in London.
"But there is still uncertainty so in the currency markets we're seeing position squaring. We expect sterling to be in a tight range until Thursday."
At 1420 GMT the euro was 0.6 percent up from Friday's close at 67.03 pence. It also gained on the dollar, trading 0.3 percent up at $1.2314.
The pound was steady on the day at $1.8380. It was down from the day's peak of $1.8477, which in turn compared with last week's two month high of $1.8486.
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