Sterling retreated on Monday from one-week highs hit against the dollar as weaker equity markets spurred profit-taking in riskier currencies and investors braced for a raft of UK economic data later this week. Sterling also lost ground versus the euro on some profit-taking and weighed by a European Commission report saying the British economy would contract more than previously thought in 2009, although it would return to growth in the third quarter.
The pullback in sterling came as the dollar gained against most major currencies, bouncing off one-year lows hit last week as investors fretted about a growing trade spat between the United States and China.
Sterling markets were turning cautious too ahead of Bank of England Governor Mervyn King's testimony to lawmakers on Tuesday he is likely to face questions about the future of the central bank's asset purchase programme which it left unchanged last week at $175 billion sterling.
"There's a general sell-off in risky currencies and people taking a bit of profit on positions ahead of this event risk that we have for the rest of the week," said Ardash Sinha, a currency strategist at Barclays Capital in London. By 1412 GMT, sterling was 0.5 percent down on the day at $1.6578, pulling further away from a one-month high of $1.6742 hit in intraday trade on Friday. The euro fetched 88.10 pence by 1413 GMT, up 0.7 percent on the day.