LONDON: Sterling hit a 10-month low against the euro on Tuesday as investors grew more bearish about Britain's economic outlook after consumer spending fell for a third month in a row in July.
"There is very little reason to be bullish about the British economy now and it is relatively cleaner to execute a short sterling trade against the euro against whom its economic fortunes have diverged completely," Jordan Rochester, an FX strategist at Nomura in London, said.
Against the euro, sterling fell to 90.87 pence, its lowest since October 2016, before recovering partially.
It has fallen nearly 2 percent in the last three sessions, after the BOE struck a dovish stance last week.
Although BoE rate-setters tried to drive home the message that interest rates are likely to rise, the market has chosen to focus on their 6-2 vote to keep rates on hold, down from 5-3 in the last meeting, as well as downward revisions of growth and inflation forecasts.
The ECB is set to reconsider its monetary stimulus programme in the autumn. Core inflation in the currency bloc unexpectedly rose to a four-year high last month, while unemployment has fallen to its lowest since 2009.
The British pound, which has fallen more than 2 percent over the last three sessions, dropped below $1.30 for the first time since July 21.
"The Brexit negotiations don't seem to have started on a strong note and that is weighing on the economy and the currency," Esther Maria Reichelt, an FX strategist at Commerzbank in Frankfurt, said.
British retail sales grew more slowly in July, data on Tuesday showed, as shoppers cut back on non-essential spending and budgeted for the higher price of food following last year's Brexit vote.
On a trade-weighted basis, sterling fell to its lowest level since March.
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