Sterling fell broadly on Tuesday, as fears of a nuclear crisis in Japan sparked a global pullback in riskier currencies and led investors to pare expectations of an early rate hike by the Bank of England. In contrast, investors' expectations that the European Central Bank will start raising rates as early as next month despite the earthquake in Japan sent the euro to a four-month high against the pound.
The euro rose more than 0.5 percent on the day to 86.98 pence, its highest since November 5, when it reached a peak of 87.78 pence. Analysts say the pair could test last October's high of 89.40 pence. The pound fell to $1.5978 before recovering to $1.6065, but was still trading 0.6 percent lower on the day. Traders said there were decent corporate orders around $1.60. Technical support was seen around $1.5962, the 38.2 percent Fibonacci retracement of the pound's December-March rally.
Sterling also hit a 2-1/2-month low against the safe-haven Swiss franc. The pound fell as low as 1.4735 francs, its weakest since January, before recovering to trade at 1.4766 francs. Sterling also fell to a two-month low against the yen to 129.20 pence, before recovering to 130.04 yen. The yen has seen big gains as investors like hedge funds and macro names unwound leveraged positions on Tuesday. The pound's broad fall kept sterling index at its lowest in six weeks.
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