* Pound drops as Brexit uncertainty deepens
* Dollar nurses overnight losses, risk appetite cautious
* Norwegian crown hits record low
* Aussie jumps after joblessness rate drops
* Graphic: World FX rates in 2019 tmsnrt.rs/2egbfVh
By Tom Westbrook
HONG KONG, Oct 17 (Reuters) - The pound tumbled on Thursday on deepening uncertainty over Brexit after the party that backs Prime Minister Boris Johnson’s minority government said it could not support the deal that he and the EU are proposing.
The leadership of Northern Ireland’s Democratic Unionist Party said it did not support proposed solutions to handling Irish border checks, a major sticking point in negotiations over the terms of Britain’s departure from the bloc.
Sterling slid as much as 0.6% against the dollar to $1.2748 , and shed 0.5% versus the euro to as low as 86.81 pence , before steadying and recouping some losses.
The pound has surged some 5% since last week as the negotiations between Britain and the European Union made progress, hitting a five-month high in volatile trade.
DUP support for Johnson’s government is crucial as some hardline Brexiteers in his Conservative party say they will be swayed by its stance on the Irish border issue.
“This just feeds in to the uncertainty and volatility of the Brexit process,” said Commonwealth Bank of Australia FX strategist Richard Grace.
He said he expected further sterling volatility until the outcome of EU leadership meetings on Thursday and Friday in Brussels becomes clearer, with a deal capable of pushing the pound past $1.3500 and failure of sending it below $1.2200.
The dollar, meanwhile, was held down by weak overnight retail sales figures and gathering doubts about a mooted Sino-U.S. trade deal.
It drifted lower against the euro to $1.1072 and was steady against the Japanese yen at 108.75. Against a basket of currencies it hit a month low of 97.898 overnight and strengthened very slightly on Thursday.
The Norwegian crown weakened to an all-time low of 10.1800 against the euro. Some analysts blame the currency’s recent weakness on global trade jitters, while others said the speed and magnitude of the drop were hard to explain.
In Asian trade, the biggest gainer was the Australian dollar , which rose 0.3% to $0.6780 after jobs data showed buoyant hiring, reducing chances of monetary easing in November.
“This is just what the doctor ordered,” said CommSec Chief Economist Craig James. “There is no reason for the Reserve Bank to cut rates again in November – giving (it)... more time to gauge the effectiveness of early rate reductions.”
Lingering worries about trade tensions between the United States and China kept a lid on gains for most trade-exposed currencies, though.
Negotiators are working on nailing down text for the first phase of the trade deal for their presidents to sign next month, but details are scarce.
“Even if a deal is signed, it remains uncertain if the obligations can be fully met on both sides,” strategists at Singapore’s DBS Bank said in a note.
The New Zealand dollar fell marginally to sit at $0.6287, not far from a four-year low hit two weeks ago.
China’s yuan weakened slightly to 7.0990 per dollar, while the safe-haven Swiss franc rose 0.1% to 0.9936 per dollar. (Reporting by Tom Westbrook; Editing by Sam Holmes and John Stonestreet)