LONDON, Jan 4 (Reuters) - Sterling inched higher against a broadly weaker dollar on Wednesday after hitting a two-month low on a volatile first day of 2017 trading in London when Britain's chief EU negotiator quit.
The pound gained 0.1 percent on the day in early deals to trade at $1.2256 but was 0.1 percent lower at 85.12 pence per euro after hitting a two-week high of 84.51 pence on Tuesday.
Data on the economy continues stronger than many economists had expected after last June's vote to leave the European Union, with a survey on Tuesday showing manufacturing growth at a two-and-a-half-year high last month.
But politics are widely expected to weigh on the pound at least until the promised formal start of talks on leaving the 27-country bloc in March.
Analysts said the early departure of Britain's outgoing ambassador and a leaked resignation letter that called on colleagues to challenge "muddled thinking" added to uncertainty.
"I don't think any of that story can be positive for the currency. It highlights the uncertainty that has weighed on sterling for some time," HSBC strategis Dominic Bunning said.
"It is not a massive new reason to sell cable and was probably offset by the positive economic data we got yesterday. But the gains in the past few hours are really just a dollar move."
The monthly purchasing managers' index (PMI) for the manufacturing sector rose to 56.1, the strongest since June 2014. That exceeded all forecasts in a Reuters poll, which pointed to a decline to 53.1, adding to signs that the economy ended 2016 strongly.
Construction PMI numbers, as well as Bank of England credit and mortgage data are due later on Wednesday. (Editing by Louise Ireland)