It was the latest in a run of mediocre economic data that further reduced the chances of a rate increase from the Bank of England when it meets next week.

"Sterling has developed a bit of its own momentum in a thin market after the data, so these moves can be exaggerated and we are waiting for the markets to settle down," said Ian Gunner, a portfolio manager for the Altana Hard Currency Fund.

Struggling against a resurgent dollar, the British currency extended losses to fall 1.3 percent to a low of $1.3588, its biggest daily drop in six months as weak PMI data prompted model-based funds to sell the pound in a thin market with Europe closed due to May holidays.

The pound is down nearly 6 percent from a post-Brexit referendum high of $1.4377 hit on April 17.

Swap markets now indicate around a 16 percent chance of a rate increase this month, down from 90 percent in early April.

"We are starting to see any residual expectations of a rate hike from the Bank of England next week starting to fade," said Viraj Patel, an FX strategist at ING in London.

Data from the US Commodity Futures Trading Commission showed net long speculative positions, which had started April at their highest level in four years, posting their second-biggest weekly drop of the last eight months.

Against the euro, sterling weakened half a percent to 88.17 pence.