Sterling hit a near 12-year low on a trade-weighted basis on Wednesday and was mired close to a two-year low versus the dollar, weighed by worries about UK economic weakness and a deterioration in the eurozone.
Against a currency basket of the UK's major trading partners, sterling fell to 90.3, a level not seen since October 1996, as investors reckoned that a slowdown in the eurozone may hurt an already struggling UK economy. The pound rose against the dollar as traders booked profits on a broad rally in the US currency on Tuesday, which had pushed "cable" to its weakest since July 2006, sterling was expected to remain under pressure across the board.
"It wouldn't be too surprising to see some correction higher in cable in the near term simply because we think the dollar bullishness is overdone," said Robert Minikin, senior currency strategist at Standard Chartered.
"But we remain sterling bears in the long term," he said, adding that Bank of England rate cuts, which he expects to begin later in the year would help to push the pound as low as $1.70 by mid-2009.
The euro rose as much as roughly 0.4 percent to 80.01 pence by 1313 GMT, inching towards a five-week high of 80.04 pence hit on Monday. Sterling traded 0.3 percent higher at $1.8443 after climbing as high as $1.8488. The pound had fallen as low as $1.8328 on Tuesday, after a weak reading of the German business climate reminded investors that global economies were not immune to US economic weakness. Sterling has dropped from $2.0153 hit just over a month ago, and is on track to clock its worst monthly performance against the dollar since 1992.
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