The pound declined against the euro and the franc in the European session on Monday, after the International Monetary Fund warned that a no deal Brexit would incur substantial costs to the British economy.

In its latest report, the lender said that a "no deal" Brexit on WTO terms would entail substantial costs for the UK economy and to a lesser extent the EU economies, especially if it were to occur in a disorderly fashion.

The consequences of a Brexit on monetary and fiscal policy are uncertain as the outcome will depend on the relative shifts of supply and demand and to the extent of sterling depreciation.

The range of remaining issues to be prepared for Brexit were "daunting," while further rate hikes should await clear confirmation of a durable rise in domestic cost pressures, it said.

European shares declined on concerns that an escalating trade war between the United States and China could hurt global growth.

The Trump administration is set to impose another US$200bn in tariffs on goods imported from China this week as hopes fade for a thaw in trade relations between the world's two largest economies.

The currency rose against its major counterparts in the Asian session, with the exception of the euro.

Reversing from an early 5-day high of 0.8884 against the euro, the pound edged down to 0.8904. The pound is poised to find support around the 0.91 level.

Final data from Eurostat showed that Eurozone inflation slowed as estimated in August.

Harmonized inflation came in at 2 percent in August versus 2.1 percent in July, which was the highest since December 2012. The rate came in line with the estimate published on August 31.

The pound pared gains to 1.2624 against the franc, from a high of 1.2662 hit at 1:55 am ET. On the downside, 1.25 is possibly seen as the next support level for the pound.

On the flip side, the pound advanced to 146.78 against the yen and 1.3104 against the greenback, reversing from its early lows of 146.32 and 1.3067, respectively. The pound is seen finding resistance around 149.00 against the yen and 1.33 against the greenback.

Looking ahead, Canada existing home sales for August and New York Fed's empire manufacturing data for September are due in the New York session.

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