London, May 18 (Bloomberg) -- The British pound fell against the dollar for the first day in four, tracking declines in the euro, amid speculation it will keep trading in tandem with the single currency against the U.S. currency in coming weeks.The pound's decline today was because ``it is tied to the euro,'' said Euan Gibson, a sterling trader at Royal Bank of Canada. Sterling and the single currency often trade together against the dollar because of the prospect Britain will adopt the euro, analysts said.
Although Prime Minister Tony Blair this week ruled out a referendum on whether Britain should join in the immediate aftermath of the election on June 7, he has said he favors joining the single currency ``in principle.'' The euro dropped as low as 87.84 U.S. cents per euro from 88.23. One pound bought $1.4272, a drop from $1.4320 last night. This year, the pound has fallen 4.4 percent against the dollar and has risen 2.5 percent against the euro. Against the single currency, sterling was little changed at 61.65 pence from 61.61.
The U.K. currency's tendency to follow the euro ``reflects unease amongst investors that there will be a referendum on the European Monetary Union,'' said Brian Martin, chief currency strategist at Barclays Capital. ``If sterling joins, it means the pound is the euro.'' The pound's link to the euro means its attractiveness as a way for investors to diversify their holdings away from euro- denominated assets has waned, weighing on it in the past six to 12 months, Martin said.

Euro Opinion
Although public opinion remains hostile to the euro, some analysts suggest the ruling Labour government may use the size of its majority to take on public opinion early in the new term. Labour leads the main opposition Conservative Party by as much as 20 percentage points in some opinion polls, suggesting it may even increase its 179-seat majority in the 659-seat House of Commons.
The government has promised to assess the economic case for joining the euro within two years of the election. Gibson at Royal Bank of Canada said the pound's declines today may also be on speculation that Bass Hotels & Resorts Inc., a subsidiary of Bass Plc and owner of Intercontinental hotels and Holiday Inn, may bid $4 billion for U.S.-based Wyndham International Inc., the Financial Times said, without citing sources.
To complete the transaction, the 2.8 billion-pound figure cited in the newspaper report would need to be converted into dollars, traders said. ``That could be weighing the pound down a little bit,'' said Gibson. ``The markets are looking for any sort of direction and this could affect the pound.''
A recovery in U.S. stocks will weigh on the euro, helping to drag the pound down to $1.39 in the next two months, Martin said. The Nasdaq Composite Index has jumped 35 percent since April 4, while the Dow Jones Industrial Average has jumped 24 percent and the S&P 500 has gained 19 percent since March 22.

Buoyant Economy
Still, some investors have said the pound will gain, buoyed by an economy that isn't slowing as much as the U.S.'s. Recent U.K. figures have shown the economy isn't being weighed down by the global slowdown. A report yesterday showed U.K. retail sales rose 0.6 percent in April from March and 5.9 percent from a year ago, more than economists had expected. ``The strong U.K. retail sales support a positive outlook for sterling,'' said Michael Klawitter, market strategist at WestLB, in a note to investors. He sees sterling climbing to as high as $1.4720 in the next three months.
Higher interest rates in the U.K. than in the U.S. and euro region may also help boost the pound, analysts said. Benchmark borrowing costs in the U.K. stand at 5.25 percent, compared to 4 percent in the U.S. and 4.5 percent in the dozen nations that share the euro. There are no economic reports scheduled for release in the U.K. today.