Sterling firmed against a weaker euro on Tuesday after European monetary policy makers signaled the potential for further monetary easing to avoid deflation in the euro zone.
The single currency was down 0.5 percent against at 83.46 pence and on track for its biggest daily fall since February 12. Against , it was flat near $1.38.
Bundesbank President and member of the ECB Governing Council Jens Weidmann said it was not "out of the question" for the ECB to buy bank assets to fight deflation, in a softening of the German central bank's strict stance on the issue.
Another ECB governing council member, Jozef Makuch, said deflation risks in the euro zone have risen and fellow policymakers are prepared to take decisive steps if needed.
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Traders will listen to a speech by Weidmann in Berlin at 1630 GMT for further hints on the interest rate outlook.
Sterling gained against the dollar after data showed British consumer inflation for February slowed as expected, disappointing some who had positioned for a weaker reading.
The pound was trading up about 0.2 percent above $1.65.
The British currency has fallen around 1.3 percent this month, pressured by Federal Reserve chief Janet Yellen's hint last week that U.S. interest rates could rise early next year.
A survey showed on Tuesday that British retail sales growth had eased in March by more than expected, helping keep sterling's gains in check, although expected sales volumes for next month rose to their highest level since December 2010.
—By Reuters
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