Sterling steady as all eyes turn to U.S. jobs report

By Jemima Kelly

LONDON, May 6 (Reuters) - Sterling was steady on Friday as investors waited for a key U.S (Other OTC: UBGXF - news) . labour market report that should provide them with clues on when the Federal Reserve will raise U.S. interest rates again.

Regional and local elections, in which Britain's Labour Party suffered losses but looked on track to win the prize of London mayor, had no noticeable impact on the pound.

Instead, the primary medium-term focus for sterling remains the June 23 referendum on Britain's membership of the European Union, with most polls showing the "In" and "Out" campaigns neck-and-neck.

But the main focus on the day is the U.S. non-farm payrolls report, which is expected to show 202,000 jobs added in April after increasing by 215,000 in March.

Investors only see a 13 percent chance that the Fed will hike in June, according to CME's FedWatch, so analysts reckon the dollar could strengthen if U.S. data starts to improve, as investors bring forward their rate hike expectations.

"Short cable (sterling/dollar) would be the preferred vehicle to express a bearish GBP view should U.S. data begin to turn the corner," said ING strategist Viraj Patel.

"The re-pricing in of a material Brexit risk premium, which based on our estimates is still negligible, and pent-up sterling weakness from a more striking deterioration in UK economic fundamentals, would leverage any cable downside stemming from a recovering dollar. We still see scope for sterling to move below $1.40 ahead of the Brexit vote."

Most economists reckon leaving the EU would deal a blow to the British economy, with a hefty current account deficit - 7 percent of GDP in the last quarter of last year - leaving it vulnerable to any pull-back in investment flows. Any news that makes a Brexit more likely, therefore, knocks sterling.

Eikon readers can click cpurl://apps.cp./cms/?pageId=brexit for the latest news and analysis on the EU referendum.

Sterling edged down 0.1 percent on Friday to $1.4493 , almost three cents away from a four-month high hit of $1.4770 on Tuesday.

For the week, the pound is down 0.8 percent versus the greenback, on track for its first weekly drop in four, having also been hurt by weak purchasing managers' index (PMI) surveys that showed Britain's economy slowed in April.

"The economy could well be on a shaky road ahead of (the)Brexit (vote) in June," said Western Union's UK head of corporate treasury sales, Tobias Davis.

Against the euro, sterling was flat at 78.775 pence