Sterling was pushed to a 6-1/2 year low against the dollar on Tuesday and hovered close to record troughs against the euro, keeping parity with the single currency in sight.

A deteriorating economy and the prospect of more aggressive interest rate cuts has hobbled the pound, with thin trading conditions helping to exaggerate moves as the year draws to a close.

Market participants view it as only a matter of time before sterling breaches parity against the euro after the single currency surged to a record high of 98 pence on Monday, according to Reuters data.

"People see the opportunity to test parity in these thin trading conditions," State Street foreign exchange strategist Lee Ferridge said.

At 9:18 a.m., the pound was steady against the dollar at $1.4497, having earlier hit a session low of $1.4385, its weakest since April 2002.

The euro jumped 1.2 percent to 97.60 pence to trade just a touch below Monday's high.

Investors are increasingly worried about the state of public finances, which will limit room for further fiscal stimulus to shore up a flagging economy.

Reuters