(Reuters) - Sterling fell to a eight week low against the dollar and was down near a 10-month trough versus the euro on Friday after weaker-than-expected retail sales data added to concerns about a floundering British economy. Sentiment towards the pound has also taken a knock in recent sessions due to uncertainty over Britain's relationship with the European Union, the country's biggest trading partner. A keynote speech by Prime Minister David Cameron, in which he was due to warn that the UK could drift out of the EU if the bloc did not undertake reforms, was postponed at the last minute due to the Algerian hostage crisis. He had been expected to spell out his plans to renegotiate Britain's membership and promise a rare referendum on any deal he struck. The possibility of Britain looking to leave the EU had left investors jittery and inclined to sell the pound. The weak UK data exacerbated the pound's drop. Retail sales in December fell 0.1 percent from a month earlier, compared with a rise of 0.2 percent forecast. For the year, sales rose just 0.3 percent, its smallest rise since April and falling well short of forecasts of a 1.1 percent rise. The pound fell to $1.5924 (9993 pence) -- its lowest since Nov 22 -- from $1.5948 before the data was released. Traders cited support at its 200-day moving average at $1.5909 with stop-loss sell orders cited below that. Traders reported bids from Asian central banks at around $1.5920 which is also the 50 percent retracement of the pound's rise from a low of $1.5458 on July 26 to a high of $1.6380 struck on January 2. "The data highlights that there is still weak growth in the UK and as well as uncertainty related to monetary policy," said Lee Hardman, currency analyst at Bank of Tokyo-Mitsubishi. "The UK's ongoing membership of the EU is not helping as well and is impacting short-term sentiment towards the pound. There is a bias for the pound to weaken still." Sterling extended losses against the euro for a third straight day. The euro rose 0.2 percent to 83.76 pence, having hit 83.885 pence earlier in the session--its highest since late March. Traders cited option barriers at 84 pence. Last year, the pound had gained against the euro as investors fleeing the euro zone debt crisis sought refuge in triple-A rated UK gilts. "Sentiment towards the euro has picked up and that has sapped safe-haven flows into the pound," said Adam Myers, currency strategist at Credit Agricole. Sterling's losses drove the trade-weighted index down to 82, its lowest since early April, data from the Bank showed. A weaker pound will be welcomed by the Bank, however, which is concerned that sterling's gains, especially against the euro, will hurt exports and dampen prospects of an economic recovery. Analysts expect the economy to have contracted in the fourth quarter, data for which will be released next week. Britain's economic worries have increased after news that music and DVD retailer HMV and DVD rental firm Blockbuster UK had gone into administration. Fitch ratings agency warned this week the UK's top-notch sovereign credit rating could be cut if the March budget shows debt levels continuing to rise. "It does not look too good for sterling, given the grim economic picture," said Richard Driver, currency analyst at Caxton FX. "We are looking at 85.10 pence in euro/sterling by the middle of the first quarter."

Source