Sterling slid to a four-and-a-half month low against the euro on Thursday as weak retail sales data raised concerns about a fragile economy while Moody's warned slower growth could make it harder to rein in the deficit.
Concerns that a weak economy could push back the timing of a Bank of England interest rate rise pushed sterling lower just as the euro gained steam, with investors shrugging off doubts about Portugal as they anticipated a eurozone rate hike next month.
The single currency jumped 1.4 percent to 88.04 pence, its strongest since early November. This left it on track to test the November 4 peak of 88.18 pence and helped push the pound to its lowest in 2011 versus a currency basket.
"Recently all the focus has been on the prospect of interest rates rising, but now people are thinking rate hikes will not come as quickly as they had been anticipating," said Richard Wiltshire, chief FX broker at ETX Capital.
Traders said a euro/sterling buy order from a UK clearer had helped to lift the single currency, while sterling also fell against an otherwise weaker dollar, losing 0.6 percent to $1.6138, having hit a low for the day of $1.6128.
The pound fell well below a 14-month high of $1.6403 hit earlier this week after data showed UK inflation rising at more than double the government's 2 percent target. It dropped below technical support around $1.6140, the 61.8 percent Fibonacci retracement of the $1.5975-$1.6403 rally this month.
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