Sterling sinks to three-week low on economy, Tory conference

FILE PHOTO: A one pound coin lies on a Union Flag in this picture illustration shot on May 3, 2017. REUTERS/Darren Staples/Illustration/File Photo

LONDON (Reuters) - Sterling slipped to a near three-week low against the dollar on Monday as investors focused on underlying weakness in the British economy and the governing Conservatives gathered for what could be a fraught party conference.

Data on Friday showed gross domestic product growth slowed to 1.5 percent year on year in the second quarter while the current account deficit increased more than expectations.

“Sterling has come off its highs with the current Tory Party conference the focus of investors,” Morgan Stanley strategists wrote in a daily note saying the pound was a sell due to political risks and weak UK economic balance sheets.

Apologising for losing her party’s majority at a snap election in June, Prime Minister Theresa May said on Sunday she had the right strategy to lead Britain and win a Brexit deal.

Sterling posted its biggest monthly rise in more than two years in September, gaining more than 1.6 percent against the dollar after the Bank of England signalled a rate increase in the coming months.

The Bank has come under pressure in recent weeks as doubts emerged whether the struggling economy could stomach a rate hike.

On Monday, sterling fell half a percent to a near three-week low of $1.3323 against the dollar, its lowest level since Sept. 14, according to Thomson Reuters data.

Against the euro, hit by Sunday’s violence-marred independence referendum in the Spanish region of Catalonia, sterling was little changed at 88.09 cents per euro.

The dollar started the month on a high on Monday, underpinned by higher U.S. yields with an index tracking its performance against a trade-weighted basket of currencies rising half a percent to 93.53.

Reporting by Saikat Chatterjee; editing by John Stonestreet