LONDON- The pound edged towards three-month lows against the euro on Tuesday as better-than-expected PMI data did little to support the currency, which is primarily driven by changes in global risk appetite and Brexit.
The IHS Markit/CIPS flash composite Purchasing Managers' Index (PMI), which measures activity in the services sector and manufacturing, jumped to 47.6 in June from 30.0 in May.
This was a record rise that easily exceeded expectations in a Reuters poll for an increase to 41, though its sub-50 level still represents a modest fall in output.
"The UK PMIs have returned to more 'normal' levels," James Smith, developed markets economist at ING, wrote in a note to clients.
"But judging by other measures of activity, we suspect the size of the UK economy will still be 15-20% smaller at the end of the second quarter than it was pre-virus. We don't expect a full recovery until 2022 at the earliest."
Versus the dollar, the pound was at $1.2456 at 1010 GMT, down 0.1% on the day.
Sterling also fell versus the euro, coming close to its three-month low of 90.715. At 1010 GMT it was at 90.625 pence per euro, down around 0.4% on the day.
"The PMI data might not be much use to us until we get to the back end of the summer to see where activity can settle, how open we can get our economies and how much back to normal we can get things," said Kit Juckes, head of FX strategy at Societe Generale.
Juckes said the pound continues to trade as a risk-on, risk-off currency, responding to changes in global risk appetite as economies around the world reopen.
Britain has been incrementally reopening its shuttered economy as the number of COVID-19 deaths and cases declines, having been one of the worst-hit countries during the pandemic.
Prime Minister Boris Johnson is expected to say on Tuesday that cinemas, museums and galleries in England can reopen from July 4.
Four years ago today Britain voted to leave the European Union. Having left the bloc at the end of January this year, Britain and the EU now have until the end of 2020 to agree a new trading relationship.
Negotiations have made little progress so far. The EU said last week that it is committed to reaching an agreement with Britain -- but not at any cost.
The EU could soften demands in trade talks that Britain follow its state aid rules, diplomats and officials have said. (Reporting by Elizabeth Howcroft; Editing by Kirsten Donovan and Catherine Evans) ((Elizabeth.Howcroft@thomsonreuters.com; +44 02075427104;))