Sterling fell one percent on the day against the dollar on Thursday and also slipped versus the euro after weaker-than-expected UK retail sales data spurred speculation that the Bank of England might cut interest rates again.
Retail sales were unchanged on the month in August, compared with expectations of a 0.3 percent rise, bringing the annual rate of increase to just 0.8 percent, its lowest since May.
Sterling hit a two-week low of $1.8046 by 1400 GMT, grinding lower after the data was released. "The retail sector is not looking good and it might lead to the Bank of England to cut interest rates next year," said Marios Maratheftis, currency strategist at Standard Chartered.
The pound also fell 0.3 percent to 67.59 pence per euro, off its 2-1/2 month high of 67.10 set on Monday. It also fell on a trade-weighted basis after rising for two sessions.
After the data, short sterling interest rate futures rallied as investors priced in lower borrowing costs ahead. The BoE cut interest rates for the first time in 2 years in August, bringing the benchmark rate to 4.5 percent.
But analysts said the monthly retail sales figures are volatile and pointed out on a three-month/three-month basis sales rose 0.8 percent, its highest quarterly gain since November 2004.
"If you look at numbers carefully it's not as bad as the headline suggests so it is premature to conclude that more rate cuts are coming," said Petya Koeva, currency strategist at Barclays Capital.
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