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NEW YORK (Reuters) - Sterling declined on Monday, adding to Friday's losses that saw the currency plunge to a 31-year low in what has been described as a "flash crash" event, with investors concerned Britain will make a hard exit from the European Union.
The dollar firmed across the board as it continued to benefit from expectations the Federal Reserve would most likely raise interest rates in December. Investors are looking to Wednesday's release of minutes of the latest Federal Reserve Open Market Committee meeting to find out how close the U.S. central bank was to hiking rates last month.
But the focus of the market during the U.S. Columbus Day holiday was squarely on the British pound after the currency's thrashing on Friday. The pound has fallen for three straight sessions.
"Investors predict further declines as hard Brexit seems increasingly inevitable," said Paresh Davdra, chief executive officer and cofounder of Rational FX in London, an online FX service.
"Investors and bankers alike are balking at the prospect of hard Brexit, as (Prime Minister) Theresa May's plan for curbing immigration is the latest in a series of announcements which suggest the UK seeks a clean break from the EU's single market."
The Bank of England's trade-weighted index, which did not price during sterling's 10 percent off-session crash in Asia on Friday, hit its lowest since 2009 as worries about the impact of Britain's exit from the European Union continued to weigh.
The Mexican peso, the largest emerging market currency in terms of trading volume, surged on Monday after the damaging publication of a video of U.S. Republican presidential nominee Donald Trump making vulgar comments about women.
By mid-morning trading in New York, the pound was down 0.4 percent at $1.2362 and fell 0.5 percent versus the euro which traded up at 90.19 pence.
That compared with the flash crash lows of $1.1491 and 94.03 pence per euro, Reuters data showed.
The dollar rose 0.7 percent against the yen to 103.61 yen and climbed against the euro, which fell 0.4 percent to $1.1152. These gains pushed the dollar index up 0.2 percent at 96.861.
The Mexican peso, which has been pressured since May by Trump's promises to clamp down on immigration and rethink trade relations, surged as markets trimmed the chances of a victory for the Republican nominee in next month's elections.
The Mexican currency rose more than two percent against the U.S. dollar, which fell to 18.84 pesos after the second presidential debate between Trump and Democratic nominee Hillary Clinton.
(This version of the story corrects the first paragraph to add a dropped word)
Reporting by Gertrude Chavez-Dreyfuss; Additional reporting by Patrick Graham in London; Editing by Meredith Mazzilli