Sterling dips after gloomy PMI surveys

By Amanda Cooper

LONDON (Reuters) -The pound sagged on Tuesday after a survey showed British business activity slowed in early September, as companies reported a loss of momentum and confidence given the rising risk of tax increases later this year.

S&P Global's preliminary UK Composite Purchasing Managers' Index, covering the services and manufacturing sectors, slowed to 51.0 in September from 53.5 in August, not far above the 50.0 level that separates growth from contraction.

Economists polled by Reuters had forecast a more modest fall to 53.0 in Tuesday's survey.

Sterling fell as much as 0.2% on the day to a session low of $1.34885 immediately after the survey, before tracking back to around $1.35.

It is still up around 8% against the dollar this year and nearly 5.5% against the euro, which on Tuesday traded 0.13% higher at 87.41 pence.  

Strategists at BBVA noted the pound is struggling to gain much traction, even with upbeat investor sentiment and UK equities near record highs.    

"We continue to see scope for sterling weakness: with markets pricing in just 7 basis points of BoE cuts by year-end, euro/sterling has upside potential. We think a BoE rate cut in the next two meetings is likely," they said.

Part of the pound's relative resilience against the dollar in the face of deteriorating UK data is the expectation that the Bank of England will take longer to lower rates than the Fed, given British inflation is running at almost 4%, nearly twice the central bank's target.

Currency volatility generally was muted ahead of planned remarks later from Federal Reserve Chair Jerome Powell. 

Powell is expected to reiterate the need for caution in cutting rates, a view a number of Fed officials expressed on Monday, in contrast to new Fed Governor Stephen Miran - a pick by President Donald Trump for his views on the need for lower rates - who said the central bank is misreading how tightly it has set monetary policy and risks undermining the labour market.    

Back in the UK, finance minister Rachel Reeves is under growing pressure to keep Britain's finances in check, which could result in new tax rises in her budget in November.

(Reporting by Amanda Cooper; Editing by Sharon Singleton)