SYDNEY (Reuters) - The euro nursed losses early on Thursday, having suffered a setback on dovish comments from a top European Central Bank official, while a surprisingly upbeat economic outlook from the Bank of England gave sterling a shot in the arm.
ECB Executive Board member Benoit Coeure said the idea of cutting into negative territory the rate the ECB pays banks to hold their deposits overnight was "a very possible option".
His comments came barely a week after ECB President Mario Draghi put markets on alert for possible action in March.
Adding to the euro's woes, data showed euro zone industrial output fell more than expected in December. As a result, investors quickly took profits on the single currency's two-week highs against the dollar and yen this week.
The euro slipped to $1.3595 and 139.35 yen, pulling further away from highs of $1.3684 and 140.31.
"Being a member of the six person Executive Board, Coeure's comments cannot be lightly dismissed and stoke expectations for action at the March meeting," said Sean Callow, currency strategist at Westpac in Sydney.
Against sterling, the common currency fell to a three-week low of 81.78 pence.
Sterling made broad inroads against other currencies as well after the Bank of England revised up its growth forecast for 2014 to 3.4 percent from 2.8 percent, a much more bullish outlook than that of most economists.
It also hinted that interest rates could start to rise from record lows in little more than a year.
"One of the fastest growing developed economies in Europe, the United Kingdom may be the first to see its policies exit the post-crisis management era," said Christopher Vecchio, analyst at DailyFX.
The pound was last at $1.6620, having rallied nearly 1 percent against the greenback on Wednesday.
With market action centred on the euro and pound, the dollar and yen were pretty much left to their own devices.
The greenback last stood at 102.53 yen after a directionless session that saw it contained well within the previous day's trading range.
The Australian dollar also lost a bit of steam against the greenback, having scaled a one-month peak of $0.9068 on Wednesday. It last stood at $0.9013 as investors awaited a closely watched jobs report due at 0030 GMT.
Analysts polled by Reuters expect a rebound of 15,000 jobs in January, following a disappointing loss of 22,600 jobs in December.
The Aussie pared gains on the euro, which bounced back to A$1.5075 from a two-month trough of A$1.4977 plumbed overnight.
Traders said a convincing break below key chart support at A$1.4990/1.5020 was needed to see further downside in EUR/AUD.
Editing by Shri Navaratnam