* Graphic: World FX rates in 2020 http://tmsnrt.rs/2egbfVh
* Graphic: Trade-weighted sterling since Brexit vote http://tmsnrt.rs/2hwV9Hv
(Updates prices)
By Ritvik Carvalho
LONDON, Jan 8 (Reuters) - Sterling gained against a broadly
weaker euro on Friday, making up some of the losses it sustained
against the common currency as the new year began, though it was
still on track to end the week in the red.
Increased market pricing of negative interest rates from the
Bank of England following fresh lockdown measures in Britain to
combat the coronavirus has dented the pound, capping gains made
in the wake of the Brexit deal agreed at the end of last year.
Markets are pricing sub-zero rates from Britain's central
bank as early as May 2021.
Analysts caution that this will limit sterling's gains
against the euro.
"Euro-sterling remains above the 0.90 (pence) level as the
build-up of rate cut expectations (following the third lockdown)
offsets the positive effect of the UK-EU trade deal," said
strategists at ING Bank in a note to clients.
"While we still see room for euro-sterling to mildly drop
below the 0.9000 level, this should be limited given the rising
risk of further Bank of England easing, while sterling is to
benefit less from the conducive global risk environment in
comparison to its European cyclical peers such as Sweden's krona
or Norway's krone."
Sterling gained as much as half a percent against the euro
to 89.98 pence, last trading 0.3% higher at 90.14 pence by late
afternoon trade in London.
It was 0.1% higher to the dollar at $1.3582.
Sterling began 2021 at its highest levels against the dollar
since May 2018 after Britain clinched a last-minute trade deal
with the EU. Those gains have evaporated fast as Britain
grapples with rising cases of COVID-19 amid the discovery of a
new variant of the virus.
The British economy is also beginning to feel the
ramifications of life outside the EU: more than 50 British
retailers, including Tesco and Marks & Spencer,
face potential tariffs for re-exporting goods to the European
Union, their trade body said, amid warnings this could make
Britain less competitive.
A survey by Deloitte showed a wave of optimism washed over
bosses of major British companies in December, ahead of a
tightening of COVID-19 restrictions this month, even though many
thought it would take a long time to recover fully from the
pandemic.
Still, half of the respondents said it would take at least
until the end of 2021 before revenues return to their
pre-pandemic levels - chiming with a Bank of England survey
published this week.
Britain's job market strengthened for the first time in
three months in December, before a renewed lockdown this month,
with an increase in permanent hiring and a small rise in the
number of vacancies, a monthly survey of recruiters showed.
(Reporting by Ritvik Carvalho; Editing by Kim Coghill and
Gareth Jones)