By Stefano Rebaudo
(Reuters) -Sterling was set to snap a three-day winning streak against the dollar on Thursday, pressured by concerns over the UK economy and potential tax hikes.
Progress in U.S. trade talks with key partners eased investor worries about a global trade war, sparking a rally in risk assets and lifting the pound earlier this week.
However, UK PMI data showed that business activity grew only weakly in July and employers cut jobs at the fastest pace in five months, according to a survey.
Such figures are likely to add to speculation about a Bank of England interest rate cut next month.
Markets are currently pricing an 80% chance of a rate cut in August and two easing moves by year-end.
The pound dropped 0.28% to $1.3544, after hitting a fresh two-week high early in the session at $1.3588.
The dollar edged up versus the euro and the yen after progress in trade negotiations.
Sterling weakened against the single currency, which was down 0.16% at 86.81 pence.. The euro hit 86.98 pence last week, its highest level since April 11.
The rate differential between the UK and the euro area has been affecting the cross.
Markets are pricing in a European Central Bank terminal rate of 1.75%, down from the current 2%, while expecting the Bank of England to cut rates by 85 basis points by the end of next year.
“Fears over strained public finances, the growing likelihood of more tax bumps and its implications for the UK economy are weighing on the pound against the euro,” said Matthew Ryan, head of market strategy at global financial services firm Ebury, after mentioning June data on government borrowing released on Tuesday.
Britain’s government borrowed £20.68 billion ($27.86 billion) in June. A Reuters poll forecast had pegged public sector net borrowing at a median of £16.5 billion.
(Reporting by Stefano RebaudoEditing by Frances Kerry)
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