LONDON: Sterling began the week in Europe on a slightly firmer footing, recovering from 15-month lows hit in Asia on the back of a rough week of sliding world oil prices and negative economic and political news.
A growing number of banks are predicting the pound will slip back below $1.50 in the first months of next year, burdened by a slowing economy, huge fiscal and external deficits and a worryingly tight national election race next year.
By 1020 GMT it had gained 0.3 percent on the day against the dollar to $1.5705, having hit a low of $1.5585 overnight - its weakest since early September last year. It was 0.2 percent stronger against the euro at 79.39 pence per euro.
Traders said there had been some help for the pound from an above forecast survey of manufacturing purchasing managers, but that the main event domestically this week would be Wednesday's autumn budget statement by finance minister George Osborne.
"We hit highs after the PMI numbers, but there is a lot of resistance above $1.57 and I think the bias remains for a push lower at some stage," said a senior dealer with one large international bank in London.
Sterling had fallen sharply on the back of a softer consumer sentiment survey on Friday and as a speech by Prime Minister David Cameron underlined Britain's increasingly conflicted attitude to Europe.
Dutch bank ABN Amro was the latest to predict a fall in sterling in a note to clients on Monday, saying the prospect of a hung parliament and uncertainty about whether Britain will stay in the EU would weaken the pound to $1.47 next year.
"We have added GBP short versus USD on our high conviction list," analysts Georgette Boele and Nick Kounis wrote.
"This political uncertainty in the run-up to the election could undermine investor sentiment towards the UK and sterling in particular."
Osborne will seek to use the half-yearly budget update on Wednesday to convince voters that his plan for more spending cuts, focused in large part on welfare payments, is more credible than Labour's less aggressive austerity proposals.
Critics argue that the cuts have failed to ease Britain's fiscal problems and while a media report on Sunday said that the government's independent forecasting agency would raise its 2015 outlook for growth, it also said it would raise the forecast deficit.
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