The pound remained higher against the dollar in light trade on Monday, but gains were capped by an earlier report showing that activity in the U.K. manufacturing sector expanded at the slowest pace in 14 months in August.

Trade volumes were likely to remain thin on Monday, with markets in the U.S. closed for the Labor Day holiday.

GBP/USD hit 1.6644 during U.S. morning trade, the pair's highest since August 20; the pair subsequently consolidated at 1.6622, up 0.15%.

Cable was likely to find support at 1.6561, the low of August 29 and resistance at 1.6678, the high of August 20.

Markit research group said the U.K. manufacturing purchasing managers' index ticked down to a 14-month low of 52.5 in August, from a downwardly revised 54.8 in July.

Analysts had expected the index to rise to 55.0 last month.

The report said growth in output and new orders continued to slow as market uncertainty and increasing geopolitical tensions weighed, while the pace of jobs growth in the sector also eased.

A separate report showed that U.K. mortgage lending rose to £2.30 billion in July, from an upwardly revised £2.20 billion in June. Analysts had expected mortgage lending to decline to £2.00 billion in July.

Meanwhile, investors continued to monitor the situation in Ukraine after European Union leaders threatened over the weekend to impose a new round of sanctions on Russia if Moscow does not end its support for the pro-Russian rebels.

Earlier Monday, Ukrainian troops lost ground around the eastern city of Luhansk following overnight clashes with pro-Russian rebels.

The conflict broke out in March after Russia's annexation of Ukraine's Crimea region.

Sterling was also higher against the euro, with EUR/GBP edging down 0.12% to 0.7902.

Sentiment on the euro remained vulnerable after data on Monday confirmed that Germany’s economy contracted by 0.2% in the second quarter, in line with forecasts and unchanged from a preliminary estimate.

Separate reports showed that Germany’s manufacturing sector expanded at the slowest pace in 11 months in July, while factory activity in France contracted at the quickest pace in 13 months.

Slowing growth in the euro area looked likely to add to pressure on the European Central Bank to implement fresh measures to shore up the faltering recovery in the region, ahead of its upcoming monetary policy meeting on Thursday.

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