By Harry Robertson

LONDON (Reuters) - The pound hovered just above a three-month low on Friday, and was set for a 0.9% weekly fall, after hiring data added to signs of a slowdown in Britain's jobs market.

Sterling was last up just 0.06% at $1.2483, after falling to $1.2445 on Thursday, the lowest since June 8. The euro was also little changed against the pound at 85.73 pence, having traded around that level for the past four months.

Signs of a slowdown in Britain's jobs market, alongside a sharp rally in the dollar, has caused the pound to slide roughly 5% against the U.S. unit since the middle of July.

An industry survey on Friday showed that British employers reduced the number of workers they hired through recruitment agencies last month at the fastest pace in more than three years.

The slowing of the jobs market has caused traders to dial down their bets on how high the Bank of England will raise interest rates.

"Sterling's recent decline is primarily a response to a dovish repricing in near-term BoE expectations, but this leaves the pound now looking undervalued in our view," said Nicholas Rees, FX market analyst at Monex Europe.

Rees pointed to comments from Bank of England Governor Andrew Bailey, who said on Wednesday that the BoE is "much nearer now to the top of the cycle" in interest rates.

"Bailey’s dovish performance in front of Parliament has gotten markets increasingly buying into the idea that September will be the final hike from the BoE," Rees said.

The BoE next sets interest rates on Sep. 21. According to pricing in derivatives markets, traders are betting that there's a 73% chance the Bank raises rates by 25 bps and a 27% chance it holds them at the current 5.25% level.

Traders currently see rates peaking around 5.6% in early 2024, down from as high as 6.5% in July.

Meanwhile, the dollar index was also little changed on Friday but was on track for its eighth consecutive weekly increase, helping put the pound on track for a 0.85% weekly loss.

HSBC's FX analysts said in a report on Thursday that they believe both the pound and the euro will struggle against the dollar in the coming months.

"Unless and until the global outlook starts to improve again, then it is unlikely that a powerful surge in risk appetite can offset the challenging domestic forces that are becoming increasingly dominant for the EUR and GBP," they wrote.

(Reporting by Harry Robertson; Editing by Emelia Sithole-Matarise)