Sterling slumped to a four-month low against the euro on Friday, stung by news that the UK government was tightening the terms for one of the nation's banks to exit its asset-protection scheme, which underlined the fragility of the UK banking sector. The euro rose to 90.33 pence, vaulting over the psychologically key 90 pence level to its highest since May. Sterling suffered broadly this week, hitting a two-week low versus the dollar and hovering around a two-month trough against the yen on Friday.
Adding to the grim UK economic picture, data on Friday showed UK public sector finances at their worst for an August on record, although the deficit was not as wide as expectations. Lloyds Banking Group said on Friday it was in talks over a possible reduction in the number of toxic assets it might place in the official asset protection scheme (APS), encouraged by "improving economic conditions".
"The Lloyds story is obviously not so good for sterling right now," said Steve Barrow, head of G10 currency research at Standard Bank in London. By 1422 GMT, the euro traded at 90.260 pence, up 0.8 percent on the day. Sterling fell more than a full percent on the day to $1.6261, its lowest since September 4. Against the yen it slid to around 148.60 yen, near its lowest since mid-July.