LONDON: Sterling erased earlier gains in a choppy session on Friday as investors hoped Britain's new scaled-back job support scheme would be followed by other fiscal measures but feared talks about a move to sub-zero rates could intensify.
The pound was down 0.4% at $1.2692 by 1508 GMT against a dollar on course for its best week in six months. Cable has fallen 5.1% so far in September, its worst monthly performance since October 2016.
Versus the euro, sterling was up 0.1% at 91.53 pence after hitting its best level in a week of 91.13 on Thursday. This month, sterling is down 2.5% against the single currency.
Jane Foley, head of FX strategy at Rabobank, said the relationship with the euro is "perhaps a better reflection of the movements in the pound" as a large part of cable's slip "is still about the dollar's strength".
Analysts expect more steps to help the coronavirus-battered British economy after Finance Minister Rishi Sunak announced a new scheme to support jobs, but warned unemployment would still rise.
Sterling's path largely depends on whether the government will offer more stimulus or if sub-zero rates will be implemented, analysts said.
"We've had some measures, which will stop the economy falling off a cliff, but certainly it is quite possible that these will not be enough to subdue calls that the UK Government should do more in terms of fiscal support," Foley said.
If there is a reluctance to announce more fiscal measures, the market will shift focus to the possibility of monetary policy measures, Foley said.
Bank of England governor Andrew Bailey did not exclude the possibility of negative rates, saying on Thursday that the bank had not formed a view on the matter yet.
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