Sterling slipped this morning and is on track for its biggest daily drop in a week as UK economy contracted by 0.5% in July, a worse than expected 0.2% contraction in gross domestic product.
While many factors could have influenced this downturn, its been highlighted that a significant portion of this decrease can be pinned on strikes and weather conditions.
This was a contrast to the preceding month, June, which saw an equivalent rise in GDP.
The increment in June was largely driven by a spike in manufacturing, notably in car production and pharmaceuticals.
However, come July, the manufacturing boost began to unwind, coupled with a 0.5% decline in the service sector.
The dollar edged up ahead of the key U.S. inflation report due later, while the euro fell from a one-week high in the previous session with traders cautious ahead of an expected European Central Bank rate hike on Thursday.
The dollar index, which tracks the currency against six peers including yen, euro and sterling, held firm, though moves were subdued, as traders awaited the U.S. consumer price index (CPI) reading for August. The release comes just a week before Federal Reserve officials gather to decide on interest rate policy.
The consumer price index likely increased by 0.6% last month, according to a survey of economists. That would be the largest gain since June 2022 and would follow two straight monthly advances of 0.2%.
The central bank is largely expected to keep rates on hold at next week's meeting, according to CME's FedWatch Tool. The Fed's next move in November remains more uncertain.
Elsewhere, the euro edged lower ahead of the ECB meeting on Thursday.
Markets have raised their bets on further rate hikes and are now pricing in a 53% chance of a 25-basis point move this week.
The ECB expects inflation in the 20-nation euro zone to remain above 3% next year, bolstering the case for a 10th consecutive interest rate increase on Thursday.