LONDON: Sterling fell against the dollar on Thursday, tracking a drop in the euro, with investors wary ahead of the release of UK retail sales data that may heighten concerns about the economy's fragility.
Data at 0830 GMT is expected to show retail sales dropping by 0.4 percent during August, with analysts seeing a risk of an even weaker reading. This may heighten concerns about the risk of more monetary easing from the Bank of England.
"With retail sales there may have been a lot of distortions due to the Olympics and the risks are to the downside ... There is no sign the UK will bounce back strongly," said Paul Robson, currency strategist at RBS.
The pound was last down 0.2 percent at $1.6180, holding above reported bids at $1.6150.
BoE minutes on Wednesday showed some policymakers thought the UK economy would probably need more stimulus, keeping alive speculation the central bank could extend its 375 billion pound asset purchase programme in November.
Investors continued to take profits on the pound's recent rally to a 4-1/2 month high of $1.6276. But traders said it was driven mainly by moves in the euro, which dropped after an unexpectedly weak survey of French business activity.
The euro was down 0.35 percent at 80.12 pence, pulling well away from a three-month high of 81.14 pence hit on Friday. It was off an earlier low of 80.04 pence after above-forecast German activity data tempered the impact of the weak French data.
Further losses could see the euro target its 100-day moving average at 79.66 pence. However, RBS' Robson said the euro's falls this week may have been overdone and he expected it to rebound towards 83 pence over the next month.
Dealers remained focused on developments elsewhere, with uncertainty over whether Spain will ask for a bailout and weak Chinese manufacturing data curbing risk appetite. This contributed to pressure on the euro and sterling against the dollar.
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