Sterling recovered from record lows versus the euro on Tuesday, after euro zone policymakers voiced concern about the single currency's strength, while UK data pointed to an only gradual pace of monetary easing.

The euro retreated from historic peaks versus both sterling and the dollar after Eurogroup chairman Jean-Claude Juncker said euro zone finance ministers and ECB president Jean-Claude Trichet had discussed exchange rates at length and agreed to express concerns about excessive moves.

Meanwhile, market expectations of another Bank of England rate cut by the end of June eased to around 20 percent on Tuesday from nearly 50 percent at the end of last week (FSSM: Quote, Profile, Research).

PMI data on Monday showed growth in Britain's manufacturing sector slowing slightly less than expected in February, while companies ramped up prices at their fastest pace on record.

"The continued picture of not very strong growth, but not disastrous growth, combined with increasing inflationary pressures -- in that environment the BoE will likely take their time about cutting rates," said Paul Robinson, chief sterling strategist at Barclays Capital.

"That said we still think cuts are coming, because the economy is slowing."

By 0825 GMT, the pound was up 0.15 percent at $1.9874. The euro was a third of a percent lower on the day at 76.44 pence, having reached a peak of 76.78 pence on Friday and matched that level again on Monday.

"While we don't expect the euro to fall sharply against sterling over the next months, we do think that it's overvalued at these levels," Robinson said.

No first tier UK data is due on Tuesday, leaving the focus on Wednesday's services PMI and Thursday's BoE rate decision, where all but one of the 65 economists polled by Reuters expects policy to be left on hold at 5.25 percent [BOE/INT].

Sourced by Reuters.