* Graphic: World FX rates in 2020 http://tmsnrt.rs/2egbfVh
* Graphic: Trade-weighted sterling since Brexit vote http://tmsnrt.rs/2hwV9Hv
By Maiya Keidan
LONDON, Sep 8 (Reuters) - Sterling sank to two-week lows
against the dollar on Tuesday, extending losses as fears grew
that Britain is preparing to undercut its Brexit divorce treaty
and potentially torpedo its trade talks with the European Union.
The latest round of negotiations starts on Tuesday but the
EU has warned there there will be no trade deal if Britain tries
override parts of the Brexit Withdrawal Agreement it signed in
January, jeopardising the whole treaty and creating frictions in
British-ruled Northern Ireland.
Tensions have flared anew even as clock ticks down to an
October deadline for a new deal and then the end of the
status-quo transition arrangement in late December.
"I sense participants are turning bearish on elevated
chances of a no-deal Brexit but do not have a short position or
hedge on board to reflect the view," Neil Jones, head of hedge
fund sales at Mizuho, said.
"We should be in store for a further pound selloff."
The pound slipped more than 0.3% at $1.3125 by 0745 GMT
while against the euro it touched 0.90 pence, also a two-week
low .
Implied sterling-dollar volatility also rose, with one-month
volatility, the contract encompassing the early-October
deadline for a deal, reaching 10% for the first time since
mid-June.
(Reporting by Maiya Keidan; editing by Sujata Rao)