The pound fell back slightly after it was revealed that UK retail sales in July was weaker than previously reported. The numbers will re-ignite fears that the household spending may contract further and will not be able to prop up the overall economy if the Bank of England does not deliver more interest rate reductions. Official figures from the Office for National Statistics showed that retail sales in August were unchanged from the previous month, just below market expectations of a 0.1 pct increase. More importantly, however, July sales were revised sharply lower as a result of new data. Instead of the initial estimate of a 0.3 pct decline, July sales is now reported to have slipped 0.6 pct from June while the annual reading was revised down to 1.3 pct from 1.8 pct previously. The pound fell from levels around 1.8152 usd to 1.8125 usd after the news. The euro meanwhile rose to 0.6750 from around 0.6725 stg. "The pound had already been weakening ahead of the release so it may be questionable how much more ground it gives up immediately," said Daragh Maher at CALYON. "After a run of generally neutral and sometimes hawkish data, news that the UK consumer is still suffering keeps alive the possibility of a rate cut during the fourth quarter of 2004, most likely in November," he added. Still, the data should be seen against the backdrop of rising inflation -- as revealed by UK data yesterday showing that the annual CPI measure in August was at a series of 2.4 pct. Elsewhere, the yen held steady on speculation that the Bank of Japan is considering an end to its ultra-easy zero-interest-rate monetary policy. Any such move will help prop up the yen. However, the yen's gains may prove fleeting if, as widely expected, the US Fed puts up interest rates by a quarter point to 3.75 pct next week. The yield differentials clearly favour the US currency. The dollar may get more support later today when August inflation data are released. There is a risk that the numbers will come in in higher than expected because of the impact Hurricane Katrina had on various sectors. The euro, meanwhile, was under light pressure as Germany heads for elections this weekend. Opinion polls suggest there will be no clear majority, shortening the odds of a weak coalition government which will struggle to push through much needed labour market reforms.