Sterling bounces off day's lows but trade war concerns weigh

LONDON: Sterling bounced off a two-week low on Wednesday after a stronger than expected services PMI report but the British currency remained set for a fifth day of losses as broader concerns over Brexit negotiations hurt investor demand.

Britain's large services sector picked up more than forecast last month, bucking a slowdown for manufacturers and construction firms, but Brexit worries are dampening investment plans and confidence for the year ahead.

"We are approaching crunch time for the Brexit negotiations and that will be a key driver for the currency going forward rather than the cyclical changes in data," said Lee Hardman, a currency strategist at MUFG in London.

Sterling rebounded off an early low of $1.2804, its lowest since Aug. 24 and climbed to $1.2821. It still remained a quarter of a percent down on the day and is on track for its fifth consecutive day of losses.

An environment of broad dollar strength, especially against emerging market currencies, also checked investor appetite for the pound. A broader emerging market currency index  fell 0.4 percent to its lowest since May 2017.

As fears grew that the United States may be preparing to go ahead with imposing a 25 percent tariff on $200 billion of Chinese goods when a public consultation period ends on Thursday, the dollar advanced against its major rivals and emerging market currencies.

A report that the European Union could offer new guarantees to Britain to win London's support for a solution aimed at avoiding a hard Irish border after Brexit had lifted the pound overnight. But the bounce faded as investors focused on the spreading selloff in emerging markets.

Against the euro, the British currency edged 0.2 percent lower at 90.26 pence.

The pound has weakened since hitting a near one-month high of $1.3043 at the end of August on weak economic data, doubts over Prime Minister Theresa May's leadership and opposition from the European Union to Britain's proposals for exiting the bloc.

Data this week has also weighed on sterling, with a survey showing weaker than expected growth in Britain's construction sector in August also hurting demand.