Sterling hits 3-mth high after ECB Draghi's comments drag euro down

LONDON, Nov 12 (Reuters) - Sterling rose to a three-month high against the euro on Thursday, after comments from the European Central Bank chief brought into focus the divergent monetary policy outlooks between Britain and the euro zone.

The gap (NYSE: GPS - news) between the 10-year British government bond yield and its German counterpart reached its widest since early May, boosting demand for the pound, traders said.

ECB President Mario Draghi told European lawmakers that inflation dynamics had weakened in the euro zone, mainly because of lower oil prices and the delayed impact from a firmer euro, keeping alive chances of more policy accommodation next month.

In contrast, a mixed wages and labour market report from Britain on Wednesday underpinned expectations that the Bank of England could raise interest rate sometime in the third or fourth quarter of 2016.

Sterling rose 0.2 percent to 70.41 pence per euro , its highest since mid-August. A drop below 70.27 pence struck on August 18 would leave it on track to drop to July lows of 69.35 pence, traders said.

Against the dollar, sterling was slightly lower at $1.5195 , having risen past $1.52 on Wednesday and nearly 1 percent higher than a seven-month low of $1.5027 struck last Friday.

"The euro is being dragged down by Draghi's comments. It doesn't appear he is holding back. The recent mixed data from the UK means that the BoE is still on track to raise rates sometime next year. So, the August levels in euro/sterling are being targeted," said a spot trader in London.

Sterling had lost ground against the dollar in recent days after the BoE cooled expectations of a rate hike in the near term while a blockbuster U.S (Other OTC: UBGXF - news) . jobs report kept chances of a December lift-off by the Federal Reserve very much alive.

Analysts said the recent dovish signals from the BoE, which flagged risks to UK growth from external developments, showed it was growing increasingly nervous about the currency's recent strength. Trade-weighted sterling, has risen nearly 6 percent this year, hitting a 7-1/2 year high earlier this month.

"With the BoE remaining hesitant towards committing itself to raising UK interest rates, the recent bounce in sterling/dollar could just be a relief rally and will possibly conclude around the $1.52 area," said Lukman Otunuga, analyst at FXTM. (Reporting by Anirban Nag; Editing by Andrew Heavens)