May 4, 2017 / 8:18 AM / 8 months ago

Sterling holds below 7-month highs before key services sector data

* Graphic: Sterling and gilt yields

* Graphic: World FX rates in 2017

* Graphic: Trade-weighted sterling since Brexit vote

By Ritvik Carvalho

LONDON, May 4 (Reuters) - Sterling held steady below seven-month highs against the dollar on Thursday as investors awaited the results of a survey of Britain’s huge services sector, following stronger-than-expected data in a corresponding manufacturing survey.

For most of Wednesday the pound held steady, brushing off a verbal spat between Britain and the European Union suggesting negotiations over Britain’s departure from the bloc could become acrimonious.

But after Federal Reserve minutes left room for a U.S. interest rate rise in June the pound fell more than half a percent against the greenback.

On Thursday it was flat on the day at $1.2865, just a cent below April’s peak of $1.2965.

Economists expect the Markit/CIPS purchasing managers’ index for the dominant services sector, due out at 0830 GMT, to slip slightly for April from March’s reading.

“Any confirmation of more muted conditions should increase uncertainty ahead of next week’s BoE inflation report and trigger renewed currency weakness,” Credit Agricole strategists wrote in a note to clients.

“This is especially true as the latest news flow is keeping uncertainty with respect to Brexit negotiations firmly intact.”

Corresponding construction and manufacturing sector surveys earlier this week exceeded market expectations.

The pound’s steep fall after last year’s Brexit vote has aggravated domestic inflation, and analysts say the notion that faster price rises are taking a toll on services remains in place.

Nevertheless, they say the lift to sterling after May’s announcement of a snap election next month should help tame inflation and ease the strain on consumers, who propped up the UK economy with robust spending after the EU referendum.

The pound was down 0.2 percent at 84.73 pence per euro. . (Editing by Hugh Lawson)

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