Sterling fell to its lowest level in almost three weeks against the dollar on Tuesday and approached a recent eight-month low versus the euro after a weaker-than-expected survey of Britain's service sector.
The Chartered Institute of Purchasing and Supply/Reuters said its services business activity index fell to 54.7 in September from 56.9 in August, below consensus forecasts of 56.5 and its lowest since June 2003.
The survey added to a series of recent soft UK data which has raised expectations that UK interest rates might be close to their peak and put sterling under pressure.
"The headline index was weaker than expected and the new business index was also soft - the negative flow of economic data has been driving sterling lower," said Kamal Sharma, currency strategist at Dresdner Kleinwort Wasserstein.
Sterling had fallen to $1.7804, its lowest since September 16, before trimming losses to $1.7845 by 1400 GMT. It also slipped to 69.03 pence per euro, close to last week's eight-month low of 69.16.
"Sterling was pulled down by the PMI data but also caught up by general dollar strength," said Frida Gjorstrup, currency strategist at J.P. Morgan.
Sterling's trade-weighted index, which has a euro weighting of 64.82 percent, a dollar weighting of 16.49 percent and a yen one of 7.0 percent, matched last week's eight month low.
On Wednesday, Halifax releases its monthly house price index for September. UK industrial production is also due, forecast to have risen by 0.3 percent in August.
The Bank of England starts its two-day meeting on Wednesday and is expected to keep interest rates steady at 4.75 percent.