Sterling struggled to keep away from the previous session's 3-month lows against the dollar and euro on Monday, but it didn't get very far as recent mixed data stoked concerns that UK interest rates were nearing their peak.
Markets see a rate rise at this week's Bank of England meeting as very unlikely but have focused on November as more of a possibility, if the BoE decides it should add to the five increases it has made since November last year.
A Confederation of British Industry (CBI) report showing optimism among executives in the UK service sector soured in early August did nothing to support rate hike bets, after Friday's Halifax bank survey showing house prices fell in August.
"With this week's BoE meeting, no change is expected by the market. The market is starting to speculate that the peak in UK rates could be fairly close," said Ian Stannard, foreign exchange strategist at BNP Paribas.
"That's going to be a negative for sterling."
At 1450 GMT, sterling managed to trade about 0.20 percent firmer on the day at $1.7787, but still very close to Friday's low of $1.7735, the pound's weakest since late May.
At 67.82 pence per euro sterling was flat versus its previous New York close but near Friday's trough of 68.14, also its weakest since late May.
Sterling also remained soft on a trade-weighted basis, near last week's low of 103.3, its weakest since March.
UK rates are currently at 4.75 percent. "Sterling across the board is vulnerable to diminishing rate hike expectations. Our economists here have changed their view on rates this week to take one of the rate hikes out and I think other people elsewhere are doing the same," said Adam Cole, senior currency strategist at RBC Capital markets.