Sterling rebounded from a 13-month low against the euro on Thursday after the European Central Bank signalled it may not raise interest rates again as early as next month. ECB President Jean-Claude Trichet offered a much less hawkish tone on the central bank's rate outlook than markets had been expecting after April's hike, prompting traders to book profits on the euro's gains versus sterling after weak UK services data earlier in the day drove the pound lower against the common currency.
"The ECB sounded more dovish at its press conference, which is weighing on the euro," said Raghav Subbarao, currency analyst at Barclays Capital. "Today's move is a euro story rather than a sterling story." The euro fell to 88.96 pence, down 1 percent on the day.
It retreated from 90.43 pence hit earlier in the day, when sterling was battered by a weak reading of the UK services sector PMI. The euro backed off the psychologically key 90 pence level, but some traders remained bullish. Against the dollar, sterling fell half a percent to a session low of $1.6405, its lowest in two weeks. Dragged lower by a tumble in euro/dollar, the pound retreated further from a 17-month high of $1.6747 touched last week. The pound fell below $1.6430, a previous high hit in early April, and technical analysts said a close around that level would complete a head-and-shoulders formation which began in mid-April, opening the door to more losses.