* Graphic: Sterling and gilt yields bit.ly/2dgAXn1
* Graphic: World FX rates in 2017 tmsnrt.rs/2egbfVh
* Graphic: Trade-weighted sterling since Brexit vote tmsnrt.rs/2hwV9Hv
By Ritvik Carvalho
LONDON, May 12 Sterling was set for its first
weekly loss in four against the dollar on Friday as investors
looked ahead to Britain's negotiations on leaving the European
Union, after the Bank of England showed no sign of leaning more
towards raising interest rates.
Thursday's BoE rates decision quashed some bets in the
market that more policymakers would join outgoing Kristin Forbes
in voting for a rate hike. Together with the Bank's trimmed UK
growth forecast and a release of weak industrial output data,
that helped pull the pound below $1.28.
After recovering some ground at the end of the day on
Thursday, sterling was back under pressure and 0.2 percent lower
at $1.2863 by 0805 GMT.
That added up to an almost 1 percent loss for the week, its
first since the week ended April 4. It is still up more than 2
percent since British Prime Minister Theresa May's surprise call
in the middle of the month of a June 8 election.
It also fell 0.2 percent to 84.45 pence per euro.
Thu Lan Nguyen, Commerzbank analyst, said the prospect of
volatile negotiations between the UK government and the European
Union were likely to weigh on sterling later in the year. A
number of analysts were surprised by the bank's assumption in
its forecasts that the talks would go smoothly.
"We're relatively pessimistic, contrary to the view that
these negotiations will evolve rather smoothly," she said.
"Looking at the developments over the last couple of weeks
and the tensions that have built between the two parties, I'm
not agreeing with the assumption that the BoE is making in its
forecasts, which overall were relatively optimistic."
The BoE trimmed its prediction for growth this year but
upped it for 2018 and 2019, hinging on a big pick-up in wage
growth and stronger exports and investment -- things the central
bank has predicted before, but which have largely not
Governor Mark Carney said the BoE had not tried to forecast
what would happen if there was a "disorderly Brexit" where
Britain crashes out of the EU without an agreement on future
So far, the election campaign, in which Theresa May's
Conservative party is expected to secure a landslide majority,
has had little day to day impact on the pound.
"(Historically) sterling has tended to put in an improved
performance when the Conservative party has done relatively
better in opinion polls," wrote Simon Derrick, chief markets
strategist at Bank of New York Mellon, in a note to clients.
"In 1997 this happened even though there was no realistic
chance of a Conservative victory emerging. This suggests that
relative shifts in polling in the runup to an election can have
an impact on sterling even if the absolute gap between the two
main parties remains substantial."
(Reporting by Ritvik Carvalho; Editing by Hugh Lawson)