Sterling fell against the dollar on Tuesday as global recession fears resurfaced after grim US data and downbeat comments from Federal Reserve chairman Ben Bernanke on the US economy. The pound was also lower against the euro after a mixed batch of UK data and dovish comments from a Bank of England policymaker, but it jumped against a broadly weaker yen to hit its highest level since January 9.
In a testimony to US lawmakers, Bernanke warned that unless US government efforts succeed in restoring financial stability, the recession may not end this year. The dollar, which is seen as a safe haven in times of economic strain and typically rises on bad news, pushed the pound to a session low of $1.4377 and caused it to erase earlier gains.
"Sterling/dollar has been bouncing around within a fairly wide range and there isn't really a specific trend at the moment," Standard Bank currency strategist Steve Barrow said. At 1523 GMT, sterling lost 0.75 percent against the dollar to $1.4379, while the euro gained 0.8 percent to 88.38 pence.
Against a broadly weaker yen, however, the pound was up 1.4 percent at 138.73 yen, having earlier hit a near seven-week high of around 139.62 yen, according to Reuters data. The yen has suffered from worries about a weak Japanese economy, which has prompted investors to unwind long yen positions that have been built up in recent months. Standard Bank's Barrow said the market had been more focused on yen selling on Tuesday, which has helped the dollar to jump over 2 percent to a three-month high against the Japanese unit.
Investors remain wary about the bleak outlook facing the UK and about the likelihood of the UK central bank deploying unconventional measures to boost the supply of money. BoE policymaker Andrew Sentance said the British economy needs yet more stimulus to head off the risk of deflation and this would probably mean using unconventional quantitative easing measures.