Sterling hits 7-week low vs firm euro

Traders said sterling was driven mainly by movements in the euro, with potentially market-moving UK news not due until later in the week. Bank of England minutes are released on Wednesday and second quarter gross domestic product data on Friday.

The euro recovered from falls early on Monday, with traders citing buying by a U.S. name, as positive sentiment towards the single currency returned ahead of the results of European bank stress tests on Friday.

Weekend comments by Bank of England rate-setter Andrew Sentance that the BoE should start to gradually raise interest rates supported sterling, though they were partly offset by a downbeat house price survey from Rightmove.

Sentance was alone in voting for a 25 basis point hike in rates last month. Analysts said Wednesday's minutes would need to show another Monetary Policy Committee member joining him before markets concluded rates may rise sooner than previously thought.

"Sterling is just caught in the cross-fire of moves in euro/dollar and there is not a huge amount a direction ahead of a busy week for the pound" said RBC currency strategist Adam Cole.

"In euro/sterling a move towards 84 the figure might attract some buying attention, but beyond that sterling looks likely to stay rangebound."

At 0825 GMT, sterling was up 0.2 percent against the dollar to $1.5424. The euro rose 0.2 percent to 84.67 pence, its strongest since early June.

A Moody's downgrade of Ireland and the suspension by the International Monetary Fund and the European Union of a review of Hungary's funding programme earlier hurt the euro, but traders said a dip below $1.2900 in euro/dollar attracted buyers.

"The unexpected break above the 84.00 level throws into doubt our lower euro scenario and now targets the 85.20 level. The 0.8400/10 area should now act as significant support for this move higher" said Michael Hewson at CMC Markets.

He added, however, that any move below 84.00/10 could put the 83.20/30 level back into focus.

UK property website Rightmove said asking prices for British homes fell by 0.6 percent month-on-month in July, the first fall this year.

Tuesday will see the release of public finances data for June.