Oct 22 (Reuters) - Sterling hit a fresh 2-month low

against the dollar on Tuesday while investors remained focused

on the central banks' easing paths and the possible outcome of

the U.S. elections.

The U.S. dollar index was just off a 2-1/2-month high

on expectations the Federal Reserve will take a measured

approach to rate cuts, while the too-close-to-call U.S. election

keeps investors on edge.

British public borrowing in the first six months of the tax

year came in higher than official forecasts, data showed on

Tuesday, underscoring the challenge facing finance minister

Rachel Reeves in her first budget next week.

Analysts expected the UK budget to tighten spending, a move

that could weaken the economy and lead the BoE to more rate cuts

than markets are currently pricing.

Sterling was last down 0.05% at $1.2883, after

hitting its lowest since mid-August at $1.2967.

The pound has so far benefited from the Bank of England's

cautiously hawkish tone, signalling a more gradual cutting cycle

relative to peers, while UK growth was outperforming relative to

the euro area.

"We think these forces (rate and growth divergence) will

continue to weigh on the (euro/pound) cross also in the coming

months," said Kirstine Kundby-Nielsen, analyst at Danske Bank.

"Longer-term, some of these pound tailwinds look set to

fade, and we expect not least a more dovish BoE to eventually

weigh on sterling."

The BoE's Megan Greene said she still believed the central

bank should be cautious about cutting borrowing costs.

Analysts noted that Thursday's release of the UK PMI data

could affect market expectations for the BoE's monetary easing

path.

Last week, sterling tumbled to its lowest two months after

softer-than-expected British inflation.

The single currency rose 0.14% to 83.41 pence per

euro.

The repricing of the euro area policy rate outlook, with

investors discounting some chances of a 50 basis points rate cut

in December, was weighing on the single currency last week.