Brexit worries knock sterling to 5-week low

By Jemima Kelly

LONDON, Sept 23 (Reuters) - Sterling skidded over 1 percent to hit a five-week low close to $1.29 on Friday after three straight weeks of losses, as worries over Britain's exit from the European Union kept pressure on the currency.

The pound had jumped back over $1.31 on Thursday, after Bank of England policymaker Kristen Forbes said she saw no case for a further cut in interest rates. The Bank slashed rates to a record low of 0.25 percent last month and relaunched a programme of asset purchases in an effort to boost the economy.

But sterling was knocked late on Thursday after British Foreign Secretary Boris Johnson said he expected formal divorce proceedings between Britain and the EU to begin early next year, and that two years may not be needed to negotiate a deal.

It continued to fall throughout Friday, losing as much as 1.3 percent to touch $1.2915 - just over a cent higher than the three-decade low of $1.2798 that sterling reached in July, in the wake of June's shock vote for Brexit.

Against the euro, the pound also fell 1.3 percent to a five-week low of 86.77 pence.

Analysts said there were few new catalysts for sterling's weakness on Friday, but that a risk-off mood was contributing as well as Johnson's comments on Thursday.

"The pound remains very sensitive to political developments and uncertainty," said BNP Paribas (LSE: 0HB5.L - news) currency strategist Sam Lynton-Brown.

"(But) the currency was, from a short-term fair-value perspective, too expensive, and what we're seeing today is a correction."

Sterling had climbed about 5 percent from its July low as of early September, as data showed the economy holding up relatively well. But after parliament returned from its summer recess, bringing Brexit back into the headlines, worries about the fallout have weighed on sentiment and the currency alike.

"What we've always said is that with no news on Brexit, sterling is able to recover somewhat, but the uncertainties are still there," said Commerzbank (Xetra: CBK100 - news) currency strategist Esther Reichelt. "We'll have to see whether the economy maintains this positive sentiment when we're proceeding with Brexit."

Reichelt added, however, that some hard facts - rather than worries or uncertainties - would be needed in order to justify a break below July's $1.2798 low. (Editing by Hugh Lawson)