Sterling hit its lowest level since late July against a rallying dollar on Tuesday with growing expectations for a Bank of England interest rate cut sooner rather than later.
After trying to rally way away from its lows, sterling was knocked as the dollar strengthened against traditional high-yielding currencies and data showed Britain's August trade deficit unexpectedly hit a record high because of huge insurance payouts resulting from hurricane Katrina.
The Office for National Statistics said on Tuesday the goods and services trade deficit widened to a record 5.3 billion pounds from 3.9 billion in July.
"I think it's a combination of two things - one is the very strong dollar and as well the continued question marks over how far rates in the UK could go down," HSBC currency strategist David Bloom said.
Sterling hit a 10-week low of $1.7444, remaining close to that level by 1410 GMT. It was steady on the day against the euro at 68.71 pence, after hitting a two-month low on Monday at 69.00.
Data released late on Monday showed that retail sales fell at their slowest annual pace in three months in September, but the market has not been shaken from pricing in further BoE monetary easing.
"There is definitely a 'sell UK' mentality at the moment," said Bank of New York currency strategist Neil Mellor.
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