Battered pound bounces back from 2-month low

By Jemima Kelly and Patrick Graham

LONDON (Reuters) - Britain's battered pound recovered half a percent against the dollar on Wednesday, propped up by corporate demand as investors looked for bargains after it hit two-month lows the previous day.

The pound has lost almost a fifth of its value versus the greenback since last June's vote to leave the European Union, with currency traders concerned that the foreign flows of capital that Britain relies on just to fund its gaping current account deficit will dry up.

It skidded to as little as $1.2110 on Tuesday, its lowest since Jan. 17, hit by fears of prolonged political jousting over the terms of Brexit.

But it bounced back to as high as $1.2258 in early trading in Europe on Wednesday, before easing off to trade at $1.2217 by 1620 GMT, still up half a percent on the day.

Against the euro, sterling climbed 0.3 percent to hit 87.02 pence.

"There is uncertainty out there about how much of the Brexit effect is priced in - clearly we've had huge movements in sterling since June and when we do see these sharp falls there are people around looking for bargains," said Rabobank currency strategist Jane Foley.

Dealers said orders had been pushed through at the start of European trade, before labour market data at 0930 GMT.

But sterling more than halved those gains in the hour after the numbers, which showed a dip in wages growth. Traders said it looked as if there had been a build up of corporate demand for sterling between $1.2150 and $1.22 that blocked further falls.

STERLING UNDERVALUED

Most analysts say that the roughly 20 percent fall against the dollar and 13 percent loss against the euro since the Brexit vote has left sterling looking undervalued from a longer-term perspective.

But a number of leading banks have also forecast it to fall further as negotiations on the terms of Britain's exit from the EU begin in the weeks ahead.

The pound's fall to its lowest since mid-January on Tuesday came after Prime Minister Theresa May won the last of the votes in parliament required to start the Brexit process.

"With the ongoing Brexit woes effectively strengthening the relationship between uncertainty and sterling, further downside losses should be expected," wrote FXTM Research Analyst Lukman Otunuga.

Sterling inched up about 10 ticks in afternoon trading in Europe, after a Survation poll found a majority of voters still oppose Scottish independence and believe that a second referendum on the issue should not be held before Britain leaves the European Union.

"Perhaps for international investors who don't have a real handle on these issues, you could imagine there was relief that those who want to leave are in the minority still, even if it's close," said Foley.

(Editing by Ken Ferris)