Sterling weakened on Thursday after British finance minister Jeremy Hunt announced a budget with a string of tax increases and tighter public spending, saying the economy was already in recession and set to contract next year.
The euro rose 0.4% against the pound to 87.61 pence , while the British currency tumbled more sharply against the dollar , down 1% to $1.179, though this also reflected the dollar's strength against other major currencies.
"Higher taxes and lower spending are necessary evil to get inflation cooling down at this point. The price to pay for this is lower growth, recession and higher unemployment rate. The market reaction has been slightly weaker sterling and gilt markets," said Charles-Henry Monchau, CIO of Bank SYZ, in Geneva.
Sterling has rebounded sharply since then as the dollar weakened across the board on hopes U.S. inflation is slowing and the U.S. Federal Reserve is close to the end of its interest rate hiking programme.
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