LONDON (Reuters) - Sterling erased some losses against the euro on Friday, but held near recent lows versus the dollar as uncertainty around Brexit weighed on the pound, which is expected to weaken further into the end of the year.
The dollar is set for its biggest weekly rise in nearly four months, boosted by a wave of risk aversion in markets after Wall Street pulled back from recent tech-led gains.
Dollar strength has pushed cable down, from its eight-month high of $1.3481 on Tuesday to as low as $1.3244 on Thursday, held down by Brexit-related uncertainty and warnings from the Bank of England that the economic fallout from the coronavirus could be worse than expected.
On Friday it held near those lows at $1.3289 at 0742 GMT, up 0.1% since New York’s close.
The pound, euro and New Zealand dollar are all down versus the U.S. dollar by 0.5% this week - the pound’s biggest weekly fall since mid-June.
ING strategists wrote in a note to clients that, because the upside of euro-dollar is limited in the near term (until the European Central Bank meeting next Thursday) and they expect more negative news around Brexit, sterling-dollar is “unlikely to move towards the psychological 1.35 level this month.”
On Friday, the pound was up around 0.2% versus the euro at 89.1 pence per euro at 0752 GMT, set for its smallest weekly change so far this year.
Sterling is expected to weaken towards the end of the year, according to the latest Reuters poll, and is expected to be at $1.30 at the end of November, a month before the UK’s transition period with the European Union ends.
In the 12-month forecast, the poll’s range was wide, from $1.20 to $1.47.
Britain left the EU in January, with Prime Minister Boris Johnson having won the election in December with the promise that a Brexit deal was “oven-ready”.
But no such agreement has been reached. Senior government officials see only a 30%-40% chance that there will be a Brexit deal, due to an impasse over state aid rules, British newspaper The Times reported.
On Wednesday, the EU’s chief negotiator said that he was “worried and disappointed” at a lack of progress in the talks.
But a spokesman for Prime Minister Johnson said that Barnier’s comments were misleading.
Britain is “absolutely confident” it will keep supply chains moving after Brexit, regardless of the outcome of negotiations with the European Union, UK transport minister Grant Shapps said on Friday.
Reporting by Elizabeth Howcroft; Editing by Susan Fenton