LONDON Sterling fell to a three-week low against the dollar on Wednesday ahead of a data release that is expected to show growth in the UK's dominant services sector slowed last month.
Analysts polled by Reuters expect the CIPS/Markit Purchasing Managers' Index (PMI) on the service sector to fall to 53.0 in September from 53.7 the previous month, only a touch above the 50-mark that separates growth from contraction.
Sterling was down 0.3 percent against the dollar at $1.6087, having earlier touched a low of $1.6085 with traders expecting it to extend losses towards its September 13 low of around $1.6071 if the services sector survey disappoints.
"I think sterling is vulnerable to any poor economic data that comes in the next few weeks," Societe Generale currency strategist Kit Juckes said.
"It's hard to pick out a particularly optimistic sterling story unless we get some good data," he added. "We've had some horrible balance of payments numbers. We had some optimism about where the economy's going, but we have seen a weak manufacturing PMI. We'll see where the services numbers go."
The pound remains on a broad downtrend versus the dollar since hitting a 13-month peak of $1.6310 on September 21.
"At this point in time, if the global economy loses any more momentum, there will be more concerns about the UK's creditworthiness and ability to finance a huge current account deficit with massively negative real yields," Juckes said.
The euro was slightly higher at 80.10 pence. On Tuesday it hit a peak of 80.18 pence, its highest since September 20, after rising for three straight days.
Sterling came under pressure against the single currency as softer-than-expected economic data this week highlighted the fragility of the UK economy, while signs that Spain is ready to seek a bailout lifted the euro.
Figures released on Tuesday showed UK construction activity fell for a second month in September, while a Nationwide survey revealed a drop in house prices. On Monday, manufacturing PMI and mortgage lending data missed expectations.
A weak services PMI reading would further erode hopes that the UK economy posted a decent recovery in the third quarter.
Britain's economy shrank by 0.7 percent in the second quarter of 2012, extending a recession that started late last year as output wilts under the pressure of government austerity and the euro zone debt crisis.
(Reporting by Jan Harvey; Editing by Toby Chopra)
Our top photos from the last 24 hours.