Sterling tracked a rise in the euro to recover from a two-month low against the dollar on Thursday, but looked vulnerable after weak UK economic data highlighted the risk of more stimulus. The pound was last trading up 0.2 percent on the day at $1.5862. It regained ground after earlier tumbling to $1.5828, its lowest level since September 5, on a surprise fall in UK retail sales data.
Strategists said sterling was following the euro higher against the dollar as appetite for perceived riskier currencies found some support following marginally better-than-expected French and German economic data. "News out of the UK has been particularly bad with retail sales and a disappointing inflation report, and from a currency point of view there is nothing positive to take from it," said Gavin Friend, FX strategist at National Australia Bank.
Official data showed October UK retail sales slid 0.8 percent, compared with forecast for no change. The outlook for the pound looked bleak as the faltering British economy is forecast to barely grow in the current quarter and expand slightly more than 1 percent in the next year according to a Reuters poll on Thursday.
Against the euro, sterling hit a two-week low. The euro was up 0.2 percent on the day at 80.55 pence, having risen to 80.65 pence, its highest since October 31. Stop-loss buy orders were triggered on its move above 80.60 with some investors positioned for the euro to rise to 80.75 pence - the October 31 high - in the coming days.
Sterling losses earlier in the session pushed the BoE's trade-weighted index down to a three-week low of 83.4. But for the year, trade-weighted sterling has gained 3.2 percent, despite the UK economy being in recession for much of that time. The index has risen nearly 8 percent from a 16-month low of 77.70 struck in early July 2011.