LONDON: Sterling fell to a one-month low against the dollar on Tuesday after the IMF cut its forecasts to show the UK economy shrinking overall this year.
Sterling fell 0.1 percent on the day to $1.6004 against the dollar, dropping below a low of $1.6020 reached on Monday, with traders saying some investors were targeting a move below $1.60 towards the Sept. 11 low of $1.5987.
The IMF forecast Britain's economy would contract 0.4 percent this year, before growing by a tepid 1.1 percent in 2013, down sharply from its July forecasts of 0.2 percent growth in 2012 and 1.4 percent growth the year after.
A weak reading from data due at 0830 GMT could add to the negative sentiment towards the pound. Industrial output is seen falling by 0.5 percent in August after a jump in July while the August trade deficit is forecast to deteriorate.
"The medium-term fundamentals for sterling are turning negative," a UK-based trader said.
Some analysts, however, said the pound's falls could be limited against the euro, which faces strong chart resistance at the mid-September peak of 81.14 pence and the 200-day moving average at 81.18 pence.
Surveys showing some improvement in UK retail sales and the housing market also helped temper the impact of the IMF forecasts.
"We've had negative news from the IMF but we've also had surveys overnight which have been slightly more robust ... Euro rallies up to the 200-day moving average are probably worth fading," said Jeremy Stretch, head of currency strategy at CIBC.
The euro was down 0.2 percent at 80.76 pence, hovering below a three-week low of 81.00 reached on Monday.
Uncertainty over when Spain may seek aid and the lack of progress in talks on getting Greece back on track with its bailout programme may also hamper the euro.
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