Sterling tumbles as risk aversion spikes
Sterling tumbled to a near-two year low versus the yen and slid against the dollar on Wednesday as increased risk aversion and a view that UK interest rates are set to fall led investors to sell the pound.
Concerns about the health of the global economy in the wake of a 75 basis point cut from the Federal Reserve has led investors to wind down carry trades where they borrow low yielding currencies like the yen to buy higher yielding assets.
Comments from the Bank of England governor added to expectations that there will be a February rate cut, eroding the currency's yield appeal.
A survey of 58 economists polled by Reuters all forecasted a cut to 5.25 percent in February.
"Risk appetite is unwinding and high yielders are retreating," said Daragh Maher, senior currency strategist at Calyon. "The BoE governor said (monetary) policy is a headwind to growth getting across the message that there are downside risks to growth."
By 1454 GMT the pound had fallen as low as 204.69 yen, down nearly 2 percent and its lowest since April 2006, 15 percent lower than its 241 yen peak set in November.
It was down 0.6 percent versus the dollar at $1.9490. The euro was up 0.15 percent at 74.72 pence.
The pound has fallen sharply this year as negative news on the economy has fuelled expectations that interest rates are set to fall by as much as 100 basis points by the end of the year.
Sterling briefly strengthened after minutes from the BoE showed that only one member of the Monetary Policy Committee voted for a rate cut rather than the two that were forecast.
The pound was also briefly supported by GDP data that came in slightly above forecast. However falling equity markets and a sense that risk aversion is back to the fore ensured that any gains were short-lived.
Sourced by Reuters.