LONDON, July 13 (Reuters) - Sterling rebounded from the day's lows on Friday after U.S. President Donald Trump said he looked forward to finalising a post-Brexit trade deal with Britain, though a firm greenback and trade tensions weighed on the British currency.
The pound rose from the day's lows of $1.3103 but remained 0.2 percent weaker on the day at $1.3175. For the week it is down 1 percent, its biggest weekly drop since late May, according to Thomson Reuters data.
Trump said on Friday he looked forward to finalising a trade deal with Britain after it had left the European Union, marking an abrupt change from a newspaper interview when he said Prime Minister Theresa May's Brexit strategy would kill such an agreement.
"The move lower in sterling on a no U.S. trade deal looks to have been factored out as it now appears to be back on the table," said Neil Jones, Mizuho's head of hedge fund currency sales in London.
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.
BUY ON DIPS
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 erased earlier losses to trade flat on the day at 88.41 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 and Toby Chopra)