Sterling fell one percent against a broadly recovering euro on Wednesday as Germany's ban on naked short selling of some securities hit risk appetite, triggering broad selling of risky assets. Minutes from a Bank of England meeting also weighed on the pound as they reinforced expectations domestic interest rates would stay low for some time.
Germany on Tuesday banned naked short-selling on eurozone government bonds, some stocks and naked selling on credit protection backed by sovereign debt. In a volatile session driven by moves in the euro, the pound earlier hit a 14-month low against the dollar on concerns about the impact of fiscal tightening on domestic growth. "It is driven by movements in the euro to a large extent. There's also ongoing nervousness about the UK situation - loose monetary policy and worries about fiscal tightening," said Paul Robinson, chief sterling strategist at Barclays Capital.
The pound fell as low as 86.01 pence per euro, down more than one percent on the day. Sterling matched Tuesday's six-week low on a trade-weighted basis. Against the dollar, the pound fell as low as $1.4240, its lowest since March 2009, before bouncing to $1.4362 by 1500 GMT to trade up half a percent on the day. Britain's currency has lost more than 11 percent against the dollar this year, making it one of the worst performing major currencies.
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