Sept 23 (Reuters) - Sterling dipped against the dollar on Monday but touched a new two-year high versus the euro as business activity readings pointed to diverging economic cycles in the British and euro zone economies.

The pound slipped 0.2% to $1.3298, hovering below a more than two-year high it touched against the dollar on Friday.

British businesses reported a slowdown in growth this month, according to a survey on Monday that also showed waning price pressures, potentially encouraging the Bank of England (BoE) to consider cutting rates again.

The preliminary estimate of the UK S&P Global Composite Purchasing Managers' Index (PMI) fell to 52.9 in September, below economists' forecast of 53.5 but still well above the 50 level that separates growth from contraction.

Sterling, however, gained ground against the euro. Euro/sterling slid 0.3% to 83.59 pence - its weakest since August, 2022.

A similar survey showed euro zone PMIs sank to 48.9 this month from August's 51.0, with Germany's decline deepening and France returning to contraction following a boost in August due to the Olympic Games.

Market pricing showed traders are betting on 44 bps more of rate cuts from the European Central Bank by the end of the year, and 40 bps of easing from the BoE.

The ECB has cut rates twice this year, while the BoE has reduced rates just once. The central bank last week kept rates at 5.0%, saying it would be careful about future cuts. Signs of economic resilience and sticky service sector prices have aided expectations that the BoE need not be aggressive in monetary policy easing compared to other major central banks.

"Over the past two years, no G10 economy has seen its data outperform expectations as much as the UK and together with high real rates the currency remains in a sweet spot," FX strategists at Deustche Bank said in a note.

British finance minister Rachel Reeves said there would be no return to austerity or widespread cuts, promising long-term growth despite previous warnings of a tough budget to fix the foundations of the economy.

Reeves previously suggested taxes were likely to rise in her first budget on Oct. 30 because of what she said was a 22 billion-pound ($29 billion) hole in the public finances.

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https://www.reuters.com/markets/currencies/sterling-two-year-peak-versus-euro-after-pmi-data-2024-09-23/