LONDON, Nov 22 - Sterling recovered slightly on Thursday but remained mired near 4-1/2 year lows versus the euro struck the previous session as interest rate cut expectations mount, weighing on sentiment.

The pound struck its lowest level against the euro since June 2003 on Wednesday as minutes from the Bank of England's Monetary Policy Committee firmed investor conviction that interest rates are set to fall.

Sterling recovered a little ground in early Thursday trading but the currency is likely to remain under pressure with the market looking to signs of weakness in the UK economy for further opportunities to sell the currency.

The pound has also been hit as risk averse investors have backed out of carry trades where they borrow low yielding assets like the yen to fund purchases of higher yielding assets. On Thursday though such carry unwinding stalled as recovering equity markets gave risk appetite a slight boost.

"Sterling is suffering from the worst of both worlds," said Simon Derrick, head of currency research at Bank of New York Mellon. "The market is convinced that interest rates are coming down and the carry trade is unwinding."


At 0843 GMT, the pound was steady at $2.0658. The euro was down 0.22 percent at 71.78 pence, but still close to the 72.13 pence high set on Wednesday.

Investors will look to third quarter UK GDP data released on Friday for further clues on the state of the UK economy and prospects for interest rates.

Source supplied by: Reuters