UPDATE 2-Sterling set for biggest weekly loss in nearly 2 months

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LONDON, July 13 (Reuters) - Sterling weakened on Friday, putting it on track for its biggest weekly drop in nearly two months as a resurgent dollar and comments by President Donald Trump that a possible U.S.-British trade deal was probably dead sapped demand for the pound.

The pound fell 0.6 percent on Friday to $1.3103 and has weakened 1.2 percent for the week, its biggest weekly drop since late May, according to Thomson Reuters data.

U.S. President Donald Trump, who is visiting Britain, said Prime Minister Theresa May's newly-announced Brexit blueprint had probably killed hopes of a trade deal.

"Trump's latest comments is a fresh source of headache for sterling after a week of struggling with political headlines and Brexit concerns," said Olivier Kerber, a currency strategist at Societe Generale in Paris.

This week's losses has more than erased last week's modest gains on the back of growing expectations of a interest rate hike from the Bank of England in August. The British currency has fallen 9 percent from a near-two year high hit in April.

Expectations of an August rate hike have increased after some positive data in recent days, especially latest monthly growth numbers and upbeat comments from Governor Mark Carney.

Market expectations of a rate hike in August have grown to 65 percent from less than 50 percent two weeks earlier.


Trump's comments follow a series of resignations from May's government over her strategy and also complaints from financial firms over its provisions for the sector after Britain leaves the European Union in March.

May's government outlined its proposals to retain the closest possible trade relations with the bloc, although there was one major shift -- the government abandoned plans for close ties for Britain's huge financial services industry.

Markets are concerned that the EU will demand more concessions from Britain before agreeing to a Brexit deal, spelling months of more political uncertainty.

"Sterling looks to be still a buy on dips around 1.30 levels but with all this news on the political front, investors are wary of taking aggressive positions until some clarity emerges," said Georgette Boele, a senior FX strategist at ABN Amro Bank in Amsterdam.

Positioning indicators are more favourable towards sterling, as long bets have been whittled down in recent days with overall net positions mildly bearish on sterling.

Against the euro, the British currency weakened a quarter of a percent to 88.56 pence.

ING strategists said the much-awaited Brexit white paper published on Thursday had not quite solved the UK's future trading relationship, and markets would be waiting to see if the EU can work with latest proposals.

Its a working paper rather than a final paper," said Savvas Savouri at hedge fund Toscafund Asset Management, which has $4 billion under management.

"This is not going to be the form that the deal takes because she has won over the Remain camp of the Tory party but she has created resentment amidst Leavers and that resentment has to be pacified somehow."

(Reporting by Saikat Chatterjee, Additional reporting by Maiya Keidan; Editing by Robin Pomeroy)