The exchange rate has slipped to €1.128 after reaching two-monthly highs of €1.138 yesterday.
Sterling enjoyed a sizeable boost against the euro late last week after the Bank of England voted on interest rates.
Though the vote remained unchanged at 7-2, comments made by the Monetary Policy Committee in the wake of the meeting bolstered hopes of an imminent rate hike.
Key policymaker Gertjan Vlieghe said in a speech on Friday: “The evolution of the data is increasingly suggesting that we are approaching the moment when [the] bank rate may need to rise.
“If these data trends of reducing slack, rising pay pressure, strengthening household spending and robust global growth continue, the appropriate time for a rise in bank rate might be as early as in the coming months.”
Pound euro exchange rate: Sterling has faltered after comments about Brexit by Boris Johnson
Mr Vlieghe’s strong hints of a looming rate rise sent sterling soaring against the euro and the US dollar.
The exchange rate continued to climb yesterday but was hit by two important events through the course of the day.
Debate raged at the start of the week over an article Boris Johnson wrote for the Daily Telegraph at the weekend.
Speaking on Brexit, Mr Johnson wrote: “Once we have settled our accounts, we will take back control of roughly £350 million a week.
“It would be a fine thing, as many of us have pointed out, if a lot of that money went on the NHS, provided we use that cash injection to modernise and make the most of new technology.”
Pound euro exchange rate: Sterling has slipped to €1.128
He was reviving an earlier claim he made prior to the Brexit vote, and yesterday was both supported and criticised for doing so.
Rewan Tremethick, currency analyst at TorFX, said: “The GBP/EUR exchange rate took a double-whammy of disappointing news yesterday.
“First, markets were concerned that Boris Johnson’s reuse of the £350 million per week Brexit ‘windfall’ claim may have made it harder for Theresa May to present the government as having a cohesive approach to Brexit during her speech on Friday.”
The second event occurred yesterday afternoon, when Bank of England Governor Mark Carney gave an address in Washington DC.
Pound euro exchange rate: Sterling remains volatile to retail sales data on Wednesday
Boris Johnson’s £350 million Brexit ‘windfall’ claim may have made it harder for Theresa May to present a cohesive approach to Brexit
Mr Tremethick explained: “Bank of England Governor Mark Carney warned that changes to interest rates would likely be gradual and limited.
“This rather dampened the market’s excitement after last week’s Monetary Policy Committee meeting suggested rates were likely to start climbing soon – and to above their pre-Brexit levels at that.”
The exchange rate remains vulnerable to the release of UK retail sales on Wednesday.
Figures are expected to rise 1.1 per cent year-on-year for August, from 1.3 per cent previously.