LONDON, July 6 - Sterling hit its highest in over seven-month against the euro on Friday as the single currency fell within two cents of record lows against the dollar a day after the European Central Bank left interest rates unchanged.
The ECB and the Bank of England held fire on rates on Thursday. While a string of strong UK data meant the BOE's decision was widely expected, recent signs of weakness in the euro zone economy made the euro vulnerable to ECB's decision to refrain from easing monetary policy which would have stimulated growth, analysts said.
Sterling was meanwhile steady against the dollar, holding half a cent above Thursday's two-week lows, ahead of May UK industrial production data at 0830 GMT and U.S. non-farm payrolls data at 1230 GMT.
"If you can imagine the worst possible situation for the euro, that is what we have got -- what people see as inertia from the ECB, coupled with weaker euro zone data and a stronger outlook for the U.S.," said Matthew Clements, economist at Prebon Marshall Yamane in London.
"The move up in the pound against the euro is because of euro/dollar. If you see sterling as fixed, if euro/dollar is going to fall, euro/sterling is going to fall as well."
At 0725 GMT, the pound was hovering around $1.4030 , half a cent above Thursday's lows around $1.3985 set after stronger-than-expected U.S. non-manufacturing survey on Thursday.
Sterling was trading around 59.70/80 pence per euro , 1/3 pence away from earlier peaks around 59.45, according to data.
Chartists expected the euro to fall to 58.85 pence against sterling, if 59.35/45 support area was breached.
"The euro sold off from the 60.40/45 (pence) resistance and has sold off to the 59.60, 59.35 supports, which have so far held," said Karen Jones, technical analyst at Commerzbank in London.
"We look for rebounds near term to be contained by 59.90/60.00 which will leave immediate pressure on downside to retest the 59.45/35 supports, we would allow for these to hold the initial test. Failure here will target 58.85."