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MidEast escalation pressures pound against safe-haven

dollar

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Data shows UK pay settlements at 2-year low in 3-months to

Aug

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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 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 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 was flat at 83.29 pence per euro,

while the pound firmed 0.6% against a weakening yen

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.

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.