Analysts cited a mix of reasons for the currency's weakness. Recent data from the UK has reinforced the impression that inflation is under control, making it unlikely that the MPC will raise interest rates in the near term. Higher interest rates encourage investors to put their money in UK assets, generally boosting the pound. These hopes are, however, not enough to boost the euro against the strong dollar. The euro dipped to a three-month low of 88 cents before bouncing back to 89 cents in early afternoon trade.
Many investors remain unconvinced that a strong euro is sustainable.
It was seen as the latest evidence of European capital heading to the US, where companies and investors believe the returns on their investments will be greater.