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The Aussie dollar was also sharply higher after
the Reserve Bank of Australia hinted its cycle of interest rate
cuts may be over for now after easing by another quarter
percentage point.
An extremely volatile second half of April saw the U.S. currency
slide more than 6 percent against the euro, doubts over the pace
of U.S. growth prompting the first major turnaround in a rally
that dates back almost a year.
That has somewhat undermined faith in major banks' forecasts it
would move past parity to the euro for the first time since
2002, but many analysts still characterize the move as a
temporary retreat on its way higher.
"We have had a big correction and that has taken some of the
(potential for) profit-taking out of the market," said Jane
Foley, a strategist with Rabobank in London.
"That said there is still a big debate about how fast the Fed
can start raising rates. We have had a very disappointing first
quarter in the U.S., we need to know how much that is just
weather and other temporary factors."
The euro fell to $1.1088 from a two-month peak of $1.1290 set at
the end of last week.
This week's key numbers out of the United States are non-farm
payrolls on Friday.
Before then, there is the prospect of a UK election that looks
likely to lead only to ???further days or weeks of uncertainty
over the makeup of the next government.
One-week implied volatility on sterling is at its highest since
the last election in 2010 as a result and many analysts have
argued the pound itself will at risk .
"Euro positioning is still short enough to argue for caution,"
Kit Juckes, a strategist with Societe Generale in London, said
in a note to clients. "GBP/USD, on the other hand, is
vulnerable. It is going to be very hard for anyone to form a
stable government after Thursday night. I can't see how that
helps sterling."
Sterling held steady at $1.5124.
The Aussie fell initially after the RBA cut rates, but the
removal of a sentence that has previously pointed to further
easing was read as signaling it was done for now - a positive
for short-term market borrowing costs.
By 0838 GMT, the Aussie was 0.3 percent higher on the day at
$0.7867, having earlier climbed above $0.7900.
(Editing by Andrew Heavens)
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