UPDATE 1-Sterling set for biggest weekly fall versus dollar since mid-June

Pressure has also come from 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 $1.3285 at 1021 GMT, up 0.1% since New York’s close. Sterling is expected to weaken towards the end of the year, according to the latest Reuters poll, and is…

* Graphic: World FX rates in 2020 http://tmsnrt.rs/2egbfVh

* Graphic: Trade-weighted sterling since Brexit vote http://tmsnrt.rs/2hwV9Hv(Updates prices, adds comment and chart)

By Elizabeth Howcroft

LONDON, Sept 4 (Reuters) – Sterling erased some lossesagainst the euro on Friday, but held near recent lows versus thedollar as uncertainty around Brexit weighed on the pound, whichis expected to weaken further into the end of the year.

The dollar is set for its biggest weekly rise since June,boosted by a wave of risk aversion in markets after Wall Streetpulled back from recent tech-led gains.

Dollar strength has pushed cable down, from its eight-monthhigh of $1.3481 on Tuesday to as low as $1.3244 on Thursday.Pressure has also come from Brexit-related uncertainty andwarnings from the Bank of England that the economic fallout fromthe coronavirus could be worse than expected.

On Friday, it held near those lows at $1.3285 at 1021 GMT,up 0.1% since New York’s close.

The euro and the pound are both down about half a percentversus the dollar this week – the pound’s biggest weekly fallsince mid June.

The pound was up around 0.2% versus the euro at 89.15 penceper euro at 1028 GMT, set for its smallest weekly change so farthis 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 Britain’stransition period with the European Union ends.

In the 12-month forecast, the poll’s range was wide, from$1.20 to $1.47.

“We are forecasting a weak pound in the short term and onlya very moderate recovery in the next couple of quarters,”Commerzbank analyst Thu Lan Nguyen wrote to clients.

“In fact, there is a high risk that the pound will suffermuch more severe setbacks in the meantime than our forecastssuggest due to rising Brexit risks,” she added.

Senior government officials see only a 30%-40% chance thatthere will be a Brexit deal, due to an impasse over state aidrules, British newspaper The Times reported.

Euro-sterling implied volatility gauges with three-monthmaturities rose this week, indicating heightened volatility inthe run-up to the Brexit deadline.

Elsewhere, Bank of England policymaker Michael Saunders saidunemployment was likely to rise significantly in the comingquarters and it was “quite likely” more stimulus would beneeded.

(Reporting by Elizabeth Howcroft; Editing by Susan Fenton andMark Potter)

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