Sterling reaches $2 for first time since April

LONDON, July 1 (Reuters) - Sterling hit the psychologically key $2 mark on Tuesday for the first time in over two months on expectations that inflationary pressures will prevent the Bank of England from cutting rates even as the economy slows. Tuesday's PMI data showed a deeper than expected contraction in the manufacturing sector in June, but investors focused instead on input and output prices rising at their fastest rate since the respective series began in 1990s.

"Sterling seems to be outperforming for the moment as... inflationary pressures are going to leave interest rates on hold for the time being," said Geraldine Concagh economist at AIB Group Treasury in Dublin.

"The PMI showed a strong pick up in price pressures," she added.

Sterling rose as high as $2.0003 according to Reuters data, its highest since April 21 <GBP=>. A move higher in euro/dollar also benefited the pair <EUR=>.

(Reporting by Veronica Brown and Toni Vorobyova)