LONDON (Reuters) - The pound on Thursday held onto its gains from the previous day against the euro and the dollar on the back of stronger British business activity data than across the channel, but the approaching European Central Bank meeting kept traders on edge.
Sterling was up a fraction against the dollar at $1.2725 having gained 0.3% the day before after the release of Britain's Composite PMI which rose to 52.5 in January, its highest in seven months.
The flash reading for the euro zone showed business activity shrinking for an eighth month, albeit at a slightly slower pace, pushing the euro to a new four-month intra day low against the pound of 85.36 pence.
The euro was flat on Thursday at 85.57 pence.
"The UK growth momentum continues to improve, driven by the persistent expansion in the services sector, which differentiates the UK from the rest of Europe," analysts at Goldman Sachs (NYSE:GS) said in a note.
Currency markets were fairly quiet in early European trading on Thursday ahead of several key events. [FRX/]
First the ECB announces its latest policy decision at 1315 GMT. While the central bank is expected to keep rates steady, the focus is on whether President Christine Lagarde deviates from expectations that she pushes back firmly against market bets on rate cuts as soon as April at her press conference.
The pound has been supported in recent weeks by expectations that the ECB and the U.S. Federal Reserve will cut rates before the Bank of England.
Fifteen minutes after the ECB rate decision is announced comes the first reading of fourth-quarter U.S. gross domestic product (GDP). Expectations are for 2% annualised growth, according to a Reuters poll, though estimates range between 0.8% and 2.8%.
That data will help shape the U.S rate outlook.