The euro fell to an 8-day low against the British pound, after a report showed that the UK services sector activity rose sharply in March, renewing speculation over interest rate hike in the near term.

EUR/GBP fell to 0.8729 during European morning trade, its lowest since March 24, before consolidating at 0.8732.

The pair is likely to find support at low of 0.8662 reached on March 24, and resistance at Monday’s high of 0.8839.

UK services purchasing managers’ index surged to 57.1 in March from 52.6 in the previous month, the Chartered Institute of Purchasing and Supply said on Tuesday. Analysts’ had expected the index to rise slightly to 52.90 in the month.

Separately, Markit revised UK gross domestic product (GDP) growth in the first quarter to 0.8 percent from an earlier estimate of 0.5 percent, after a strong PMI data for March.

The euro also weakened after Moody's Investor Service downgraded Portugal's sovereign debt rating from A3 to Baa1. The rating agency said that Portugal is still under review for possible downgrade and expected the country to seek outside help in resolving its debt problems.

Also, the volume of retail trade in the 17-nation eurozone dropped 0.1 percent in February compared with 0.2 percent increase in January, the Eurostat said on Tuesday.

The pound also traded higher against the dollar, with the pair GBP/USD gaining 0.66 percent to hit 1.6236.