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

LONDON: 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 since June, 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. 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.

The euro and the pound are both down about half a percent versus the dollar this week - the pound's biggest weekly fall since mid June.

The pound was up around 0.2% versus the euro at 89.15 pence per euro at 1028 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 Britain'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.

"We are forecasting a weak pound in the short term and only a 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 suffer much more severe setbacks in the meantime than our forecasts suggest due to rising Brexit risks," she added.

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.

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

Elsewhere, Bank of England policymaker Michael Saunders said unemployment was likely to rise significantly in the coming quarters and it was "quite likely" more stimulus would be needed.