Sterling fell to a four-month low against the euro and slipped versus the dollar and yen on Wednesday as investors viewed comments from the Bank of England governor as suggesting UK interest rates might not be raised further.
In a submission to parliament's Treasury Committee, BoE Governor Mervyn King said on Wednesday all central banks are aware that they may be called on to prevent shocks to the global financial system. He also added that providing liquidity to the system undermines the efficient pricing of risk.
Britain's 5.75 percent policy rate, the highest among the Group of Seven industrialised nations, has helped the pound attract relatively risky investment flows seeking to lock in its yield premium over lower-yielding currencies.
However, a severe squeeze across UK money markets has bolstered expectations the Bank of England will make a pause in its rate-raising cycle and may even ease policy next year, removing one of the support factors for the pound.
The euro rose to 68.40 pence, its highest since May 21, according to Reuters data. By 1358 GMT it was at 0.6833, still up 0.4 percent on the day. The pound was down 0.1 percent versus the dollar at $2.0304, coming off a one-month high of $2.0365 struck earlier in the day.
It fell 0.3 percent versus the yen at 231.64. Dollar weakness - it hit a record low against the euro and a 15-year trough against a basket of major currencies - was the main factor behind sterling's gains earlier. A slowing US growth rate is widely expected to prompt the Federal Reserve to start cutting interest rates next week.
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