Sterling fell to a one-month low on a trade-weighted basis on Thursday as sharp falls on the London stock market combined with recent disappointing trade data to dim the prospect of further British interest rate rises.
The pound's trade-weighted index fell to 103.7, having staged a sharp pullback from 15-month highs of 106.4 scaled just over a week ago.
"Sterling has had a roller-coaster fall this week as all the major high-yielding currencies have run into profit-taking," said David Mann, currency strategist at Standard Chartered in London.
"The extent of future UK rate hikes looks less certain given the stock market and this week's disappointing UK trade data."
Sterling had a roaring start to the year as investors scrambled into currencies with high or rising interest rates. Dealers said such yield-seeking trades were now looking over-stretched.
Britain's top shares fell to three-week lows on Thursday as a series of deadly explosions on Madrid trains raised the spectre of global insecurity.
Sterling was down a quarter percent at $1.7995 at 1545 GMT, above seven-week lows hit earlier in the session but still down more than five cents since data on Tuesday showed Britain's goods trade gap widened to a record 5.6 billion pounds in January.
The pound also lost ground to the euro, hitting a one-month low at 68.27 pence before paring losses to 68.12.
The pound's strength at the start of the year was widely blamed for the unexpectedly sharp deterioration in Britain's January trade balance.
"Sterling is still suffering a hangover from this week's trade deficit data," said Paul Robson, international economist at Bank One in London. "With the market in profit-taking mode, currencies that have risen the furthest now have the furthest to fall."