LONDON: Sterling hovered near a 10-month low against the euro on Monday and looked vulnerable as market players braced for data expected to show the UK economy contracted in the fourth quarter.
In Asian trade, the pound fell to its lowest since mid-March against the euro and hit a nine-week low versus the dollar, dragging its trade-weighted index to a 9-1/2 month trough.
It partly recovered later after failing to breach key chart support levels. But the UK faces a key week for data and events culminating in Friday's first estimate for fourth quarter gross domestic product which analysts say could be the trigger for a further bout of sterling selling.
The euro was last at 83.86 pence, having risen as high as 84.07 pence its strongest since mid-March. It failed to sustain gains above 84 pence, though more weak UK data could push it up towards 85.
Against the dollar, the pound was up 0.1 percent at $1.5881, having earlier dropped as low as $1.5838 as it added to steep falls on Friday to mark its weakest level since Nov. 16.
It held above chart support at the Nov. 15 low of $1.5828 and a reported options barrier at $1.5800.
However, as long as it remains below the 200-day moving average, a closely-watched chart indicator currently at $1.5908, more falls are likely.
"This week there are plenty of risk events that increase the likelihood of investors reducing sterling exposure," said Simon Derrick, head of currency research at Bank of New York Mellon.
"If sterling breaks below the mid-November lows then losses could accelerate into the low $1.57s/high $1.56s."
Public borrowing data on Tuesday, and Bank of England minutes and jobs figures on Wednesday could fuel fears of another recession, putting further pressure on the pound.
Following last week's unexpectedly weak retail sales figures for December, concerns have grown that Friday's data will show the economy contracted after rebounding in the third quarter.
"The focus this week will be on whether the UK is heading towards another recession, and on the risk of a downgrade to Britain's triple-A credit rating," said Nawaz Ali, analyst at Western Union.
"Friday's GDP data will be crucial and will dictate the medium-term outlook for the pound. If we get a negative number we will see further selling," he said, adding this would see the pound drop below $1.58 and the euro head towards 85 pence.
Broad falls caused the pound's trade-weighted index to drop to 81.8 its weakest since early April.
EU DEBATE
Worries about the UK economic outlook have weighed heavily on the pound in 2013 because they have coincided with improving sentiment towards the euro zone. Sterling was previously used as a safe haven alternative to the euro.
Uncertainty over Britain's relationship with the European Union could also weigh on the pound this week, with Prime Minister David Cameron set to deliver a speech about EU membership on Wednesday.
"The debate on UK membership of the EU has started to feature on the radar of international investors
Add this all together and there are a number of different forces buffeting sterling that have been kept in check during the euro zone crisis," BNY Mellon's Derrick said.
Sterling also fell to a five-month low against the higher-yielding and growth-linked Australian dollar and a three-month trough versus the Canadian dollar.
Monday's trading could be subdued because of a holiday in the United States and as many investors stay sidelined before a key Bank of Japan decision on Tuesday.
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