Sterling weakened against the dollar in volatile trade on Tuesday after a rare warning about the inflationary risks posed by a weak dollar from US Federal Reserve chief Ben Bernanke. The comments, which caused the dollar to jump broadly, proved too much for the pound, already vulnerable after a pummelling on Monday due to bleak UK economic data and banking sector jitters.
The pound fell to a 2-week low on Monday after Bradford and Bingley - Britain's largest buy-to-let mortgage lender - issued a stark profit warning, restructured its rights issue and announced the resignation of its CEO.
A run of UK data continued. Deterioration in construction activity added to weak mortgage and manufacturing figures released on Monday. Ratings agency Fitch also said pressure points were continuing to build for UK banks.
Fed Chairman Bernanke said the Fed and the US Treasury were continuing to "carefully monitor" developments in currency markets - in a surprising move as the Fed doesn't normally comment on the dollar.
By 1410 GMT, sterling had been smacked down from session highs above $1.97 to $1.9605, down 0.3 percent on the day and nearing Monday's 2-week trough of $1.9594. The dollar's broad sweep higher, turned the euro's gains against sterling to a loss, with the single currency falling 0.4 percent on the day to 78.67 pence.