LONDON (Reuters) - Sterling was a touch softer but held above this week's three-month lows against the dollar on Thursday, having recovered some ground after a selloff the previous session following weak UK economic data.
Against the euro, the pound was down just 0.1% ahead of a meeting by the European Central Bank, which is set to decide on whether to raise its key interest rate again.
It was last trading at 85.97 pence per euro and little changed on the day at around $1.25, above Wednesday's three-month low of $1.2434.
An industry survey released earlier on Thursday showed British house prices had the most widespread falls in 14 years in August as demand weakened against the backdrop of elevated mortgage costs and economic uncertainty.
This followed data on Wednesday showing the economy contracted by 0.5% in July, worse than expectations for a contraction of 0.2% and the largest drop in monthly output since December 2022.
"Momentum is to the downside in the near-term," said MUFG senior currency analyst Lee Hardman, referring to the pound's outlook.
"What's driving the pound gradually lower is that markets are gradually paring back their rate hike bets," he said noting that UK inflation numbers, released ahead of the Sept. 21 Bank of England meeting, would also be in focus.
Hardman added that if the ECB hikes interest rates later on Thursday, the euro could rally past the 86 pence marker.