LONDON Sterling fell to 2014 lows against the euro on Wednesday, extending the rally against the pound that the single currency began after the European Central Bank decided last week against further monetary easing.
The ECB left interest rates on hold and introduced no other measures to bolster the euro zone's fragile economic recovery on Thursday, despite forecasting low inflation for years to come. ECB President Mario Draghi said the euro's rise was having little impact on imported inflation in the euro zone.
The single currency was up 0.24 percent to a year's high of 83.68 cents, having risen by almost 2 percent since the decision. The pound had previously traded between 83.51 cents and 81.57 cents in 2014.
"It seems Draghi just kicked the can down the road again," said Alex Edwards, head of the corporate desk at UKForex. "It's left markets perhaps just a little bit disappointed, but it's certainly been a good driver of euro strength."
Sterling was flat against the dollar, trading at $1.6614, after earlier falling to a one-month low of $1.6568.
The prospect of a slower pace of monetary tightening from the Bank of England also weighed on the pound. BoE Governor Mark Carney told lawmakers on Tuesday spare capacity in the economy was probably slightly more than 1.5 percent of gross domestic product, suggesting the BoE's Monetary Policy Committee can hold off on raising rates for longer.
When rates do rise, they will rise gradually, Carney said. He went on to say that he agreed with comments from Deputy Governor Charlie Bean this week that rates were unlikely to exceed 2.5 percent over the next three years.
"MPC speakers over the last couple of weeks have been pretty consistent in their views that the first tightening comes sometime next year," said Paul Robson, a strategist at RBS. "But thereafter you get a very slow pace of rate increases."
Sterling has shown signs of topping out in the past week. It was one of the big winners starting in the middle of last year, benefiting from an improving economy and expectations the BoE would probably be the first major central bank to raise rates.
Overnight interbank average rates for sterling - the short-term interest rates that form the basis of lending costs for the wider economy - now are pricing in diminishing chances of a rate hike in the spring of 2015.
(Editing by Larry King)