Banking concerns push sterling to record low vs euro
The pound sank to a record trough versus the euro and to its lowest in around three years against the yen on Monday as the collapse of Bear Stearns intensified fears about the health of the UK financial sector.
The fate of the U.S. investment bank triggered fears of deepening troubles in the UK banking sector that will hit the wider economy, analysts said.
"It's guilt by association. The UK has all the problems of the United States with a housing market that looks unhealthy and an indebted consumer, there are continuing fears about where the next shoe is going to land in the UK banking sector," said Jeremy Stretch, strategist at Rabobank.
Banking shares were down across the board with HBOS (HBOS.L: Quote, Profile, Research) falling by as much as 11.7 percent while Alliance & Leicester (ALLL.L: Quote, Profile, Research) fell by 9 percent and Barclays (BARC.L: Quote, Profile, Research) by more than 6 percent.
The euro rose as high as 79.12 pence, its highest since launch in 1999, before retreating to 78.11 pence by 0853 GMT, still up nearly 0.6 percent on the day.
The pound fell to as low as 192.60 yen, its lowest since July 2005. Sterling was steady against a struggling dollar at $2.0190.
The Bank of England is seen cutting interest rates by 75 basis points by the end of the year FSSZ8 but expectations of more monetary easing are limited due to increasing inflationary pressure.
Investors will look to consumer price data for February on Tuesday and minutes from the Bank of England's last rate decision on Wednesday for further clues on the outlook for UK interest rate cuts.
Sourced by Reuters.