May 2, 2018 / 4:32 PM / a year ago

Sterling stuck near 3-1/2 month lows despite construction rebound

* Sterling wobbles around $1.36 mark

* Gains against euro as single currency sells off

* Brexit, economy risks weigh on the pound

* Graphic: World FX rates in 2018

* Graphic: Trade-weighted sterling since Brexit vote

LONDON, May 2 (Reuters) - Sterling gave up its earlier gains on Wednesday and fell back towards its lowest level since January as a stronger dollar and concerns about Brexit-related risks overshadowed data showing a rebound in construction activity in April.

With the dollar rallying for the last fortnight and expectations of a Bank of England interest rate hike next month tumbling, sterling weakened to its worst level since Jan. 12, extending a bruising fortnight for the pound in which it has fallen by more than 7 cents.

It hit a fresh 3-1/2 month low at $1.3581 in earlier Asian trading after reports that senior British lawmakers who back Brexit had demanded that Prime Minister Theresa May drop a proposal for a customs partnership with the European Union once it leaves the bloc. That reignited concerns about a lack of British political unity about the Brexit talks and undermined the pound.

“The pound has been under relentless downward pressure. The upturn in Brexit uncertainty surrounding the Customs Union debate is not helping,” MUFG analysts said.

Sterling had bounced in earlier European trading after better-than-expected construction PMI data calmed investors.

Wednesday’s IHS Markit/CIPS UK Construction Purchasing Managers’ Index (PMI) jumped to 52.5 in April from 47.0 in March. That was comfortably above the median expectation of 50.5 in a Reuters poll of economists and back above the 50 line denoting growth in activity.

Sterling could not hold on to those gains and traded 0.1 percent lower at $1.3597.

Against the euro the pound rose slightly to 87.975 pence per euro, up from a day’s low of 88.305 pence as the euro sold off broadly.

Traders will now be preparing for the PMI survey for the crucial services sector on Thursday, and then will turn their focus towards the BoE monetary policy decision next week.

David Cheetham, an analyst at currency brokers XTB, said that while it was “improbable that this (the construction PMI survey) will bring a rate hike back to the table in next week’s BoE meeting, it is a pleasing development.” (Reporting by Tommy Wilkes Editing by Gareth Jones)

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