Sterling steadies after dropping on Middle East escalation
MidEast escalation pressures pound against safe-haven dollar
Data shows UK pay settlements at 2-year low in 3-months to Aug
BoE speeches, services and construction surveys eyed
By Medha Singh
Oct 2 (Reuters) -The British pound steadied on Wednesday, a day after it fell sharply against the dollar as the growing conflict in the Middle East spurred demand for safe haven assets.
Sterling GBP=D3 was last flat at $1.3286 after dropping 0.67% the previous day as investors flocked to the U.S. currency. The pound was around 1% off a two-and-a-half year high hit on Thursday.
The dollar =USD was boosted on Tuesday as Iran fired ballistic missiles on Israel, an assault that, along with Israel's incursion into Lebanon, has sparked fears of a wider conflict in the oil-producing Middle East.
Uncertainty over whether Iran's salvo marked an escalation, rather than a temporary flare-up, kept investors on edge.
"The move lower in GBP ... can be mostly attributed to the rising Middle East tensions and hawkish Powell remarks," said Matthew Ryan, head of market strategy at global financial services firm Ebury, referring also to Monday's speech by U.S. Federal Reserve Chair Jerome Powell.
Euro/sterling EURGBP= was flat at 83.29 pence per euro, while the pound firmed 0.6% against a weakening yen GBPJPY=R to 191.80.
Beyond headlines on the Middle East, market participants will look to U.S. jobs data on Friday, which could offer hints on the health of the world's biggest economy and shape the Fed's policy path.
In Britain, data showed pay settlements awarded by employers held at their lowest in two years in the three months to August, a reassuring sign for the Bank of England as it considers whether to cut interest rates again.
The BoE, which began lowering its key borrowing rate in August, is expected to cut rates more gradually compared with European and U.S. peers as it battles sticky inflation, boosting the pound this year.
Money markets are pricing in 36 basis points of rate cuts by year-end, implying a 25 basis point move and a roughly 45% chance of another. IRPR
Several BoE officials are scheduled to speak this week, including Chief Economist Huw Pill on Friday, while service sector and house building surveys are due on Thursday and Friday respectively.
"Focus in the UK this week will be almost entirely on communications from Bank of England officials. We suspect that officials will strike a similar tone, warning against rapid cuts, and validating our view for rate reductions on roughly a quarterly basis," Ryan said.
Graphic: World FX rates in 2023 http://tmsnrt.rs/2egbfVh
Graphic: Trade-weighted sterling since Brexit vote http://tmsnrt.rs/2hwV9Hv
Reporting by Medha Singh in London
Editing by Mark Potter
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