LONDON, Oct 10 (Reuters) - The pound fell to two-month lows on Friday, set for its biggest weekly fall since a rout in UK bonds in January, largely driven by a resurgent dollar, which has vaulted higher as political crisis unfolded in France and Japan, in particular.
Sterling has lost 1.4% against the dollar this week, the most on a weekly basis since a 1.8% drop in early January, when a swell of concern about Britain's long-term finances unleashed a sell-off in gilts and the pound itself.
The pound was last down 0.2% on the day at $1.32875. It was also a touch weaker against the euro , which rose 0.2% to 87.11 pence. The single currency, which has been weighed down by political paralysis in France, has barely made any headway against the pound this week, while sinking 1.4% against the dollar .
A survey of recruitment companies on Friday showed that Britain's hiring market remains sluggish and pay is stagnating, as employers fret about possible further tax increases in finance minister Rachel Reeves' November budget.
"A stabilising UK jobs market could offer that near-term counterweight to sterling's bearish momentum," George Vessey, Lead FX & Macro Strategist at Convera, said.
Reeves is widely expected to increase taxes to keep public finances on track to meet her fiscal targets. Investors are becoming increasingly concerned about the stability of the government's finances and this is materialising as weakness in both sterling and gilts.
The yield on the benchmark 10-year gilt has risen 2 basis points so far this month, compared with a 4 bp decline in both U.S. and German yields, which in theory, should support the pound.
"We continue to expect sterling to struggle while investors await clearer signals on UK fiscal policy and the timing of rate cuts," Monex strategists said in a note.
Reporting by Amanda Cooper; Editing by Kirsten Donovan
Source: Reuters