LONDON: Sterling rose against the euro on Monday, catching a break after a sharp slide last week triggered by the European Central Bank message it no longer ruled out a 2022 interest rates hike, which overshadowed the Bank of England's rate rise.
By 0940 GMT, sterling rose 0.2% against the euro to 84.49 pence, after it touched its lowest level against single currency since December on Friday. It was up 0.1% against the dollar at $1.3534.
ING strategists said sterling was "staying reasonably supported after last week having been hit by the hawkish re-assessment of ECB policy."
On Thursday, the ECB surprised markets by suggesting for the first time that an interest rate rise this year was a possibility and that call outweighed the impact of BoE's well-anticipated rate rise.
Sterling rally takes a break ahead of BoE meeting
While a quarter-point hike was largely expected, a split vote came as a surprise, as four of the nine Monetary Policy Committee members wanted a 50 bps move. BoE also warned inflation could top 7%.
As more and more central banks move to tighten monetary policies, Kit Juckes, head of FX strategy at Societe Generale in London, expects sterling to be one of the biggest losers among major currencies in the near term.
"(BoE Governor) Andrew Bailey may sound hawkish but only because he faces a more uncomfortable trade-off between inflation and growth than others," he said.
Speculators' net long positions on the pound against the dollar fell to a three week low in the week to Feb 1, futures data from CFTC showed.
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