Sterling touches 3-month low vs dollar

By Jamie McGeever

LONDON, Sept 2 (Reuters) - Sterling hit its lowest level against the dollar in almost three months on Wednesday as investors continued to bet that the Bank of England won't raise interest rates until well into next year.

A report on the UK construction sector showed a slight increase in activity last month but not as much as economists had expected, fueling the belief that growth is slowing and that the Bank of England need not raise rates imminently.

The pound traded as low as $1.5270 against the dollar , down slightly on the day and the lowest since June 9.

The euro was down half a percent at 73.50 pence, succumbing to a broad dollar rally after U.S (Other OTC: UBGXF - news) . productivity and private sector employment data. But that was still within a cent of 74.23 pence from late August, the highest since May.

The CIPS/Markit (NasdaqGS: MRKT - news) construction Purchasing Managers' Index (PMI) was the only notable UK-centric driver for sterling on Wednesday. It (Other OTC: ITGL - news) rose to 57.3 in August from 57.1 in July, indicating solid growth but below the 57.5 forecast in a Reuters poll and levels of more than 60 regularly reached in 2014.

"The action in sterling is somewhat surprising given how hawkish BoE governor Mark Carney was in his Jackson Hole speech," said Marshall Gittler, head of global FX strategy at IronFX.

"The market may be losing faith in central bank communication as their economists can't predict future economic trends any better than the private sector, and their 'forward guidance' has proved to be pretty worthless."

Carney said on Saturday in Jackson Hole, Wyoming, that a slowdown in China's economy could push down further on inflation but it did not change, for now, the central bank's position on when and how it might raise rates.

Sterling has lost more than 3 percent on a trade-weighted basis in the last two weeks alone as investors have pushed back the timing of the first rate hike.

The earliest sterling money markets expect the BoE to move is around March/April next year. The next clue will come on Thursday in the shape of the UK service sector PMI for August, which is expected to rise to 57.6 from 57.4 in July.

Britain is still one of the fastest-growing economies in the developed world but that may not be sustainable given the weakness globally. In addition, UK inflation is virtually zero, making it more difficult for the BoE to justify higher rates. (Reporting by Jamie McGeever; Editing by Toby Chopra and Raissa Kasolowsky)