May 3, 2018 / 9:42 AM / 5 months ago

Sterling reverses gains, turns lower after weak PMI data sink rate bets

LONDON (Reuters) - Sterling trimmed gains on Thursday after a survey showed Britain’s services sector struggled to recover in April from a slowdown in March, further dimming expectations of an interest rate hike next week.

FILE PHOTO: UK pound coins plunge into water in this illustration picture, October 26, 2017. Picture taken October 26, 2017. REUTERS/Dado Ruvic

Sterling reversed gains and turned 0.2 percent lower on the day at $1.3547 compared to $1.3630 earlier and moved further away from a post-Brexit referendum high of $1.4377 hit last month.

It is now nearly 6 percent down from those levels.

“Sterling remains a sell on rallies and the three PMI data points this week suggests a broader slowdown in the wake,” said Kenneth Broux, an FX strategist at Societe Generale in London.

The IHS Markit/CIPS services purchasing managers’ index (PMI) rose to 52.8 in April from March’s 20-month low of 51.7, a smaller increase than economists had forecast in a Reuters poll and its second-lowest level since September 2016.

Expectations of a rate hike from the Bank of England next week have dwindled to less than 10 percent from more than 90 percent a month ago, crushing hedge fund positions on sterling.

Long sterling positions posted their second biggest weekly drop in eight months last week. But despite the fall in net long bets, overall positions remained within striking distance of a four-year high hit last week.

Against the euro, sterling weakened 0.3 percent to 88.25 pence.

Market probability of a rate hike from the Bank of England next week have dropped to less than a tenth on Thursday from more than 90 percent a month ago, according to swap market pricing.

Reporting by Saikat Chatterjee; Additional Reporting by William Schomberg and Helen Reid; Editing by Matthew Mpoke Bigg

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