Sterling pulled back from a one-month low against the euro on Wednesday as euro debt problems and contagion risks dogged the single currency, but it lost ground against the dollar after the Bank of England cut its economic growth forecast. Speculation that France could be the next triple A-rated sovereign to suffer a downgrade and a sharp fall in European stocks hurt the euro, which last traded down 0.5 percent at 87.66 pence.
Against the dollar, sterling was down 1 percent at $1.6153 as investors already disappointed by the Bank of England's quarterly inflation report reached for the relative safety of the greenback. Near-term support is seen at $1.6120, the low hit on July 21.
The euro hit a one-month high of 88.86 pence against the pound on the release of the inflation report before paring losses as market players realised there was no indication of an imminent resumption of asset purchasing to boost the economy. Another round of asset purchasing would be negative for the currency as it would add to sterling liquidity. The pound sold off this week after a run of dismal UK economic data including figures on Tuesday showing an unexpected fall in UK manufacturing output that stirred speculation of a downgrade to the BoE's growth forecast.
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