LONDON: Sterling fell to a one-month low against the dollar on Tuesday after data showed a bigger-than-expected fall in manufacturing output and a deterioration in the trade deficit.
This sparked concerns among investors that the UK economy may not recover in the third quarter as well as many had hoped following three consecutive quarters of contraction, leaving the pound vulnerable to more falls.
Sterling fell 0.15 percent to $1.6001, its weakest since Sept. 11.
Further weakness could see it target the Sept. 11 low of $1.5987, the Sept. 10 low of $1.5960 and the 55-day moving average of $1.5905.
The weak data also came after the International Monetary Funds slashed its forecasts to show the UK economy shrinking overall this year.
"Everyone had been getting more comfortable with the UK but recently there has been a shift in sentiment. We have seen a gradual negative momentum building up in the past 10 days or so," said Audrey Childe-Freeman, head of foreign exchange strategy at BMO Capital Markets.
Tuesday's weak data followed below-forecast purchasing managers' survey on private sector activity last week and will increase the chances of the Bank of England expanding asset purchases under its quantitative easing programme next month.
Investors were also concerned a weak economy will mean the UK government will struggle to keep to its plans for cutting the deficit, which may raise the prospect of the UK may losing its prized AAA credit rating.
"The question is does the UK come out of recession fast enough so that the fiscal path is not being questioned.
That's the most crucial factor for the longer-term outlook for sterling, the market is questioning it and that's why sterling is shaky," BMO's Childe-Freeman said.
Following the release of the data, BMO said it is looking to enter a long position in the euro against the pound at curret levels, around 80.73 pence, with an initial take-profit target of 81.50 and a stop loss at 79.75.
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