Traders citing demand from corporates to meet dividend payments and on the downside stop-loss sell orders were reported below $1.6020. UK finance minister George Osborne gives his "autumn statement" to parliament on Wednesday, after saying on Sunday that Britain would take longer to deal with its debt pile and that a recovery will be sluggish.
Economists speculated the independent Office for Budget Responsibility may lower growth forecasts and could also predict Britain will miss its debt-reduction goal. This in turn could endanger Britain's triple-A credit rating which has spurred demand for sterling throughout much of this year as investors bought UK gilts while fleeing the euro zone crisis.
"Unless the Office for Budget Responsibility does surprise us on those forecasts, the risks are slightly weaker around the statement," said Paul Robson, currency strategist at RBS. Morgan Stanley, whose FX positioning tracker showed investors had turned neutral on the pound from long positions, said in a note that Osborne was likely to opt to miss the fiscal targets rather than implement more austerity, and both outcomes would weigh on sterling.
Earlier in the session, the pound barely reacted to better-than-expected UK manufacturing data which came in at 49.1, above expectations but below 50, indicating contraction. The euro traded flat at 81.12 pence, not far from a five-week high of 81.325 pence hit on Friday when German lawmakers approved an aid deal for Greece. The single currency got a slight boost after Spain formally requested European funds to recapitalise its crippled banking sector.