Sterling hit a one-week low on a trade-weighted basis on Wednesday after data showed a record UK current account deficit in the fourth quarter and a surprise downward revision to growth.
The pound extended losses against the yen as a weaker-than-expected US durable goods report weighed on stocks and prompted investors to unwind risky carry trades where they invested in high-yielding sterling.
Britain's current account deficit hit a record 12.7 billion pounds in the final quarter of 2006, up from 10.5 billion in the third quarter. That was equivalent to 3.8 percent of gross domestic product, its highest since the second quarter of 1990.
"The current account figures were appalling and they will worsen over time," said Derek Halpenny, senior currency economist at BTM UFJ. "There is an ugly trade deficit which has been masked by FDI inflows. This (investment) surplus will diminish as income payments on the investment will lead to outflows."
At 1425 GMT, sterling was down 0.8 percent against the yen at 229.44 yen. It fell as low as $1.9598 after the UK data before eroding losses to stand 0.1 percent up on the day. Against the euro it held steady at 67.94 pence.
On the trade-weighted basis, sterling fell to a one-week low of 103.7. Data also showed the UK economy grew slightly slower in the fourth quarter than previously thought, at a quarter-on-quarter rate of 0.7 percent. The previous estimate was for 0.8 percent growth.
A survey by mortgage lender Nation-wide showed British house price inflation slowed in March to 0.4 percent on the month from a downwardly-revised 0.6 percent in February, indicating that homebuyers are feeling the effects of three Bank of England interest rate rises since August. The survey came a day after BoE Governor Mervyn King said Britain's housing market was starting to slow, weighing on sterling.
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