The pound was poised to register its third consecutive monthly decline on Friday (29 July), amid growing expectations the Bank of England will cut interest rates and implement a new set of stimulus measures early next week.
Sterling, which has fallen against all of its 16 major peers over the last three months, was 0.21% lower against the euro, trading at €1.1858 and was broadly unchanged against the dollar, exchanging hands at $1.3175.
Analysts at Societe Generale said that the majority of analysts expect interest rates to be cut next week, with a small majority expecting the Monetary Policy Committee to resist restarting the asset-purchase programme.
"Volatility will inevitably be a key feature with sterling liable to be vulnerable into the decision," they said.
"There are likely to be further capital inflows into UK assets on valuation grounds which will provide net currency support and potentially trigger an important rebound over the medium term with further high volatility."
Elsewhere, the euro gained ground against the dollar, rising 0.32% to $1.1110, while the greenback plunged 2.37% against the yen to ¥102.80.
The Japanese currency rallied after the Bank of Japan said it would raise its annual purchase of exchange-traded stock funds to ¥6trn (£44bn, €52bn, $58bn), disappointing investors who had expected aggressive easing measures.
"Markets may be disappointed that the Bank of Japan didn't deliver more stimulus overnight – it's probably just waiting until September, like the European Central Bank – but financials are clearly relieved that it didn't take interest rates further negative," said Michael Van Dulken, head of research at Accendo Markets.
However, the yen's surge against the dollar is bad news for Japanese exporters, given a strong yen makes their businesses less competitive. "You really want to see the yen depreciate," said Daniel Morris, senior investment strategist at BNP Paribas Investment Partners.