Sterling drops versus euro, focus on rate outlook
Sept 2 (Reuters) -Sterling dropped against the euro but was still within striking distance of a one-month high, while rising versus a weakening dollar.
The greenback eased but remained close to its highest level in almost two weeks as investors focused on a U.S. jobs report due at the end of this week.
British factories had their strongest month in more than two years in August as demand at home offset a fall in exports, according to a survey published on Monday.
Improving economic data and the cautious tone struck by Bank of England (BoE) Governor Andrew Bailey last week regarding further rate cuts has supported the pound.
The euro rose 0.18% against the pound to 84.26 pence per euro, after hitting on Friday 83.98, its lowest level since July 25. Sterling was marginally up versus the dollar to $1.3132.
Analysts flagged that Britain, in the last eight months, saw a more robust growth picture with the economy shaking off a shallow recession, a new government which ensured fiscal sustainability, while the Monetary Policy Committee (MPC) of the Bank of England began to dial down restrictive policy.
Still, they have slight different views about the British rate outlook.
"Our economists expect one more 25 basis points cut from the BoE this year at the November MPC meeting," said Emmanouil Karimalis, rate strategist at UBS.
"However, a cut in September should not be entirely ruled out, as data have improved since the August MPC, and the Fed is poised to cut rates for the first time in this cycle," he added.
The September MPC meeting is scheduled for September 21, one day after the Federal Reserve rate decision.
"(Finance minister) Rachel Reeves' commitment to demonstrating fiscal sustainability has been seen constructively by markets, though inasmuch as union wage costs have accelerated and utility bills are rising once more," said Mark Dowding, BlueBay CIO, RBC BlueBay Asset Management.
"Rising inflation creates a difficult backdrop for the Bank of England to reduce interest rates much over the months ahead," he added.
Reporting by Stefano Rebaudo, editing by Angus MacSwan
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