Sterling extended losses on Wednesday, hitting a one-month low against the dollar and the euro after weak UK manufacturing output data the previous day further clouded optimism that the economy may be improving. Brushing off figures on Wednesday showing a rise in British consumer confidence, the UK currency continued to smart from Tuesday's unexpected fall in output, and was on track to post its fifth straight day of losses.
Data on Wednesday also showed a slight fall in UK house prices in June, but they had limited impact on the market as their reversal from a jump the previous month was muted. Traders largely brushed off UK government proposals for banking sector reforms, as they were largely known to the market already.
"There was some consumer confidence data earlier today which was stronger, but the main issue is the manufacturing figures from yesterday, which is keeping sterling weak," said Adarsh Sinha, currency strategist at Barclays Capital in London. Traders awaited a policy decision by the Bank of England on Thursday, when it ends a two-day meeting.
The central bank is widely seen holding interest rates at a record low 0.5 percent on Thursday, but market participants said sterling may come under more selling pressure if it increases its asset purchase programme. Sterling fell as low as $1.6046, its weakest since June 9, before pulling back slightly to $1.6100 by 1328 GMT, down 0.2 percent on the day. Market participants noted that trade volumes were starting to slide before the summer holiday season, adding that lower liquidity would sting higher-risk assets, including sterling.
The euro rose as high as 86.71 pence according to Reuters data, its highest in a month, before pulling back to 86.35 pence, little changed on the day. Losses against the euro pushed sterling's trade-weighted index down to 82.2, its lowest since early June.