LONDON: Sterling resumed its role as a risk-driven currency on Friday and was on track for its biggest daily fall since June against the dollar, as global market sentiment turned sour after the latest standoff between Washington and Beijing.
World stocks tumbled and the US dollar rose after US President Donald Trump banned US transactions with two popular Chinese apps: Tencent's messenger app WeChat and ByteDance's video-sharing app TikTok.
Cable fell as low as $1.3010 and was not far off that at $1.3053 at 1530 GMT, down 0.7% since New York's close, having earlier been on track for its biggest daily fall since June.
Having rallied since the end of June, it was on track to end the week down 0.3%, compared with its 2.3% rise last week and 1.8% rise the week before. Versus the euro sterling was little changed at 90.36 pence per euro.
The pound rose to a five-month high on Thursday after the Bank of England struck a less pessimistic tone about the coronavirus-battered British economy. Traders also took confidence from the absence of signals that the BoE might introduce negative rates. The possibility of negative rates has been cited by analysts as a reason for recent sterling weakness.
A Reuters poll found that sterling is expected to lose some of its gains this year due to fears around Brexit and Covid-19. The range of 12-month forecasts was wide: $1.18 to $1.44. "Over the coming weeks, we think the market will be more focussed on headlines surrounding the ongoing Brexit negotiations rather than monetary policy," Morgan Stanley analysts wrote. Britain's transition period with the European Union is due to end on Dec. 31, after which it will leave the single market and customs union.