* Sterling back on defensive after recovery from flash crash
* Mexican peso surges after hits to Trump campaign
* Chinese yuan fixes at highest since 2010 after holiday (Updates prices, adds comments)
By Patrick Graham
LONDON, Oct 10 (Reuters) - Britain’s pound inched lower on Monday as the dollar took back some of Friday’s losses against a range of currencies, while the Mexican peso surged after the damaging publication a video of Donald Trump making vulgar comments about women.
The Bank of England’s trade-weighted index, which did not price during sterling’s 10-percent off-session crash in Asian time on Friday, hit its lowest since early 2009 as worries about the impact of Britain’s exit from the European Union weighed.
“I guess that we have to prepare for further weakness,” said Hans Redeker, head of G10 currency strategy at Morgan Stanley in London.
“The course is now certainly going to lower levels and $1.20 (per pound) should certainly be taken into consideration.”
After recovering following soft U.S. jobs numbers that weakened the dollar in U.S. time on Friday, sterling traded 0.3 percent lower than the previous close at $1.2390. It was also down 0.1 percent at 90.16 pence per euro.
That compared with the flash crash lows of respectively $1.1491 and 94.03 pence per euro.
The Mexican peso, a sufferer since May due to 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 about 2 percent to 18.91 to the U.S. dollar at one point in early Asian trade - its highest level in nearly a month - and held on to the bulk of its gains after the second presidential debate between Trump and Democrat Hillary Clinton ended.
It last stood at 19.018, still up around 1.5 percent.
The peso is unlikely to break above the trading ranges seen since June, even if more position-squaring takes place, said Wu Mingze, FX trader of global payments for financial services provider INTL FCStone in Singapore.
“A full-unwinding of the ‘Trump Trades’ should only bring us to the levels between the 18.00-19.00 consolidation zone,” he said.
In a video released on Friday, Trump is heard talking on an open microphone in 2005 about groping females and trying to seduce a married woman.
The controversy pitched Trump into the biggest crisis of his 16-month-old campaign and deepened fissures between him and establishment Republicans.
The Canadian dollar rose around 0.2 percent to C$1.3268 to the U.S. dollar, edging away from Friday’s low of C$1.3315, its lowest level since mid-March.
“Our base case remains...a Fed rate hike in December followed by another two more hikes next year,” said Heng Koon How, senior FX investment strategist for Credit Suisse.
If a slight tightening of U.S. monetary policy is accompanied by potential fiscal stimulus, it could set the stage for the dollar to strengthen next year, he added. (Additional reporting by Masayuki Kitano in SINGAPORE)