LONDON: Sterling hit a 9-1/2 month low against the euro on Monday, extending last week's losses on poor UK economic data and after a more positive tone from the European Central Bank lifted the single currency.
Many strategists said the pound could slide further given concerns about faltering UK economic growth that may lead to more monetary easing from the Bank of England and a sovereign downgrade in coming months.
The euro rose 0.5 percent on the day to 83.15 pence, its highest since early April 2012, with market players citing corporate buyers.
Those gains pushed sterling's trade-weighted index to 82.6, its lowest since mid-June. Technical analysts at SEB said the index's break below its 233-day moving average at 83.33 was a strong signal that sterling had a lot of room to drop.
"Within Europe we have had some quite positive developments while UK data has been more mixed, adding to the overall softer environment for sterling," said Ian Stannard, head of European FX strategy at Morgan Stanley.
"I would not be surprised by a move up to 84 pence over the course of the next couple of weeks."
Stannard said speculation over whether the government will call a referendum on Britain's remaining in the European Union was also unnerving sterling investors.
UK industrial and manufacturing output data on Friday were worse than forecast, increasing the likelihood the economy contracted in the fourth quarter of last year.
With no data scheduled for Monday, analysts said the next focus would be UK inflation numbers on Tuesday, expected to show annual inflation holding at 2.7 percent..
Against the dollar, sterling dipped 0.3 percent to $1.6077, with decent support seen around $1.6068 where the 100-, 55- and 50-day moving averages converge.
SAFE HAVEN REVERSED
The euro has rallied broadly since ECB President Mario Draghi gave no hint of future rate cuts at a news conference last week, while robust demand at a Spanish bond auction also reassured investors.
Some analysts said investors who had bought sterling last year as a safe haven from the euro zone debt crisis were unwinding those bets as concerns about the currency bloc breaking up abated.
"If the market is truly embracing the positives around the European outlook then the positions to be taken off are those short euro/sterling positions," said Paul Robson, currency strategist at RBS.
Robson also said the euro could rally up to 84 pence, but beyond that gains would be harder.
"A lot of the juice has already been squeezed out of this rally," he added.
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