Sterling falls as risk aversion leads to carry unwind
LONDON, Nov 12 (Reuters) - Sterling fell versus the dollar and hit its lowest level in nearly three years versus the euro on Monday as risk averse investors pared back positions in relatively risky carry trades and sold the high-yielding pound.
Falling stock markets and general concern about the health of global financial institutions since the credit crunch has made investors wary of carry trades where they borrow low-yielding currencies like the yen to fund purchases of higher-yielding assets.
"There was a continued environment of risk aversion overnight with Asian stocks falling, continuing from losses last week in Europe and Asia," said Gavin Friend, head of FX strategy at Commerzbank Corporates & Markets.
"That started to pull crosses against the dollar lower, and this dragged the pound down."
At 0824 GMT the pound was down 0.4 percent at $2.0815. The euro was up 0.15 percent at 70.27 pence, having earlier climbed as high as 70.46, its highest level since January 2005, while sterling fell as low as 228.50 yen, a two-month low.
Investors will look to October UK producer prices data at 0930 GMT for further clues on the health of the UK economy.
Weaker than expected data would slightly increase expectations for a cut in interest rates in coming months from the current 5.75 percent, putting further pressure on sterling.
Source Supplied by Reuters