By Jessica Mortimer
LONDON, Oct 29 (Reuters) - Sterling fell to a two-month low against a broadly firmer euro on Tuesday, hit by concerns that the UK economy may not be as buoyant as previously thought.
The pound, which fell on Monday after a shock fall in retail sales growth this month, pared losses after data on Tuesday showed UK mortgage approvals in September at their highest since February 2008 but remained down on the day.
The euro was up 0.2 percent at 85.51 pence, having hit 85.725 pence, its highest since late August.
'The market has got over-excited in terms of how the Bank of England will respond to a further pick-up in housing market activity through higher interest rates,' said Stephen Gallo, European head of foreign exchange strategy at BMO.
Recent strong rises in house prices coupled with other strong data, including on the labour market, led investors to bring forward expectations of when the BoE will raise rates.
However, these have been trimmed after the most recent numbers suggested recovery may not be as robust as thought.
Sterling overnight interbank average rates price in a chance of a first rise in 18 months to two years. In mid-September, this risk was seen in 15 months.
Gallo expected euro/sterling to trade roughly in an 84-85 pence range for the rest of the year, adding that month-end position adjustment was also pushing the pound lower.
The single currency extended gains after breaking above its 200-day moving average at 83.29 pence, which technical analysts said may act as strong chart support.
Sterling was down 0.3 percent at $1.6096. It was expected to struggle to overcome stiff chart resistance at the Oct. 1 high of $1.6260 and at $1.63.
'Fundamentally the pound is being undermined by the market moving to delay the expected timing and scale of monetary tightening from the BoE,' analysts at BTMU said in a note.
(Editing by Nigel Stephenson) Keywords: MARKETS STERLING/OPEN
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