The pound fell sharply on Monday, hit by ongoing risk aversion as investors worried about the spectre of a global recession, with the UK seen as particularly exposed to a prolonged economic downturn. Recession fear sparked further unwinding of riskier positions in all asset classes, with European shares tumbling more than five percent at one point.
The pound took a battering along with other higher-yielding currencies against the dollar and yen as investors unloaded carry trades, even after a G7 statement warning against excessive volatility in the low-yielding Japanese unit. Fears about the outlook for the UK economy and its vulnerability in the current crisis given its reliance on the financial sector continued to pressure sterling.
"Everyone is concerned about recession and that is not a good background for the pound," Commerzbank foreign exchange strategist Lutz Karpowitz said. At 1547 GMT, the pound was down 3 percent against the dollar at $1.5448, but was off session lows at around $1.5280 and above a six-year low of $1.5265 hit on Friday, according to Reuters data. The euro was up 1.5 percent against the pound at 80.47 pence, having hit a record high of 81.95 pence on Friday.