Sterling gets respite from sell-off

By Jemima Kelly

LONDON, Sept 7 (Reuters) - Sterling pulled away from a four-month low against the dollar on Monday, as traders bought back the currency after a sell-off that had shaved almost 4 percent off its value in just two weeks.

A disappointing report last week from Britain's dominant services sector added to doubts over whether the Bank of England would be able to raise interest rates any time soon given the current worries over market volatility and global growth.

Though BoE Governor Mark Carney said recently that a slowdown in China's economy did not for now change the bank's position on when and how it might raise rates, he did acknowledge that it could push UK inflation still lower.

A month ago, sterling money markets were pricing in a hike around the beginning of next year. The earliest they now expect the BoE (Shenzhen: 200725.SZ - news) to move is April or May.

That push-back of expectations drove the pound as low as $1.5163 on Friday, but it was over a cent higher on Monday at $1.5274, up 0.7 percent on the day. That was still around 3.5 lower than a two-month peak of $1.5820 touched on Aug. 25.

"(Sterling is) now starting to appear cheap," wrote BNP (Paris: FR0000131104 - news) Paribas strategists in a note to clients, adding that their research suggested that the pound would be susceptible to a move upwards this week.

Investors are firmly eyeing Thursday, when the BoE's nine-strong Monetary Policy Committee will convene and release minutes from the meeting. Last month just one MPC (KOSDAQ: 050540.KQ - news) member voted in favour of an immediate rate hike.

"We think it is too soon for policymakers to much shift language," said Citi currency strategist Josh O'Byrne. "With global risks rising, the argument for a more hawkish assessment is weaker, so there could be scope for some sterling-negative disappointment."

Against the euro, the pound was up 0.6 percent at 73.08 pence.

Ahead of a slew of UK economic data later in the week and the BoE minutes, British government bond prices slipped in quiet trading. The 10-year gilt yield touched its lowest level since Aug. 25 at 1.808 percent, and was last down around 2 basis points on the day at 1.81 percent. (Additional reporting by Andy Bruce; Editing by Toby Chopra)