September 21, 2018 / 8:48 AM / 10 months ago

Sterling falls after EU warns UK of a no-deal Brexit

* Graphic: World FX rates in 2018

* Graphic: Trade-weighted sterling since Brexit vote

LONDON, Sept 21 (Reuters) - The British pound fell from near two-month highs on Friday after European Union leaders warned Prime Minister Theresa May that they are ready for a no-deal Brexit if she failed to give ground on trade and the Irish border by November.

After a recent run of gains, which had pushed the pound to its highest since mid-July, sterling succumbed to selling pressure as traders reassessed their optimism that Britain can secure itself a trade deal before it leaves the EU.

May is racing to get the EU to sign up to her plans for life after Brexit in March next year but EU leaders sharply criticised her so-called Chequers blueprint.

The two sides remain divided over how to ensure that the border between Northern Ireland, part of the UK, and EU member Ireland remains open after Brexit, one of the biggest hurdles to agreeing a Brexit deal.

“This is seen as a major setback for May, ahead of next week’s party congress where she is expected to be pressured from internal critics (pressing) for a harder exit,” SEB analysts wrote in a research note.

Sterling has lurched higher and lower on almost every Brexit headline in recent weeks, although Friday’s drop was relatively measured.

The pound fell 0.4 percent to $1.3218, away from the two-month highs of $1.3295 hit on Thursday.

Against the euro, sterling slid half a percent to 89.165 pence.

Significantly better-than-expected retail sales data and higher inflation numbers published earlier this week have provided some support to the pound. (Reporting by Tommy Wilkes; editing by David Stamp)

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