The euro settled near its lowest levels versus the British pound in more than three months on Friday as a weakening growth outlook for the eurozone economy prompted traders to ramp up bearish bets before a Bank of England policy meeting next week.
"The drop in EUR/GBP has been almost entirely driven by the euro leg and global risk sentiment (to which the pound is more sensitive than the euro), and given the lack of any major domestic drivers in the UK before the 4 August BoE meeting, this should continue to be the case," ING analysts said in a note, referring to the euro/pound exchange rate.
Against the pound, the euro fell to 83.4 pence on Thursday and was trading a shade above that level at 83.9 pence on Friday. Versus the dollar, the pound was broadly flat at $1.2170.
The BoE will likely shy away from such a large interest rate rise in August and stick with the more modest 25 bps increases it has been delivering, but it is a close call, a Reuters poll of economists found this week.
Latest positioning data show investors have consolidated their bearish bets on the pound at $4.3 billion, not far from a near two-year peak of $6.2 billion in May.
(Reporting by Saikat Chatterjee Editing by Mark Heinrich)