Investing.com - The pound fell to fresh three month lows against the dollar on Thursday after data showing that the U.K. service sector grew at the slowest pace in over two years last month.
GBP/USD hit lows of 1.5241, the weakest since June 8 down from around 1.5262 ahead of the data.
The Markit services purchasing managers' index fell to 55.6 in August from 57.4 in July. It was the weakest reading since May 2013 and was well below economists’ forecasts of 57.6.
The report came after similar surveys earlier in the week pointing to a slowdown in both manufacturing and construction last month clouded the outlook for third quarter growth and tempered expectations for higher interest rates.
“As such, the economy looks set to grow by 0.5% in the third quarter, down from 0.7% in the three months to June, with the ongoing upturn almost entirely dependent on the service sector,” Chris Williamson, Chief Economist at survey compiler Markit said.
"The inflation outlook is benign and is therefore likely to help tip the argument towards postponing any rate hikes until the wider global economic picture becomes clearer."
Sterling was also lower against the euro, with EUR/GBP advancing 0.4% to 0.7365.
The single currency was boosted after data showed that the euro area private sector expanded at the quickest rate in four years in August.
The euro area composite PMI, which includes both the manufacturing and service sectors, rose to 54.3 from 53.9 in July.
Investors were looking ahead to the European Central Bank’s policy meeting later Thursday, with the bank expected to cut its inflation forecast due to ongoing falling in oil prices and slowing growth in China.
The bank was expected to keep interest rates unchanged.
Meanwhile, the U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, was at steady at 95.84.
The dollar remained supported following strong overnight gains on the back of a rally on Wall Street.
The dollar’s gains were held in check ahead of Friday’s U.S. jobs report for August, which investors hoped would provide clarity on the likelihood of a near-term interest rate hike by the Federal Reserve.
Recent turmoil in global financial markets has raised doubts over whether the Fed will hold off hiking interest rates from record lows at its upcoming policy meeting on September 17.