Sterling fell for the fifth straight day on Thursday, hitting its weakest in 1-1/2 years, as it suffered from a mix of broad dollar strength, weaker UK growth prospects and political uncertainty. As expected, the Bank of England kept its benchmark interest rate at its all-time low of 0.5 percent, where it has remained since 2009. The BoE is now expected to keep it there until next year - a stark change from six months ago, when many were betting on a rise before the end of 2014.
That push-back in rate hike expectations has been a major factor in the pound's more than 12 percent decline since then. But the currency has also been hurt by a dollar rally that has taken the greenback to a nine-year high against a basket of major peers.
Sterling fell to as low as $1.5034 on Thursday, its weakest since July 2013, before recovering a little to trade at $1.5092, down 0.1 percent on the day. Against the euro, which fell to a nine-year low against the dollar close to its 1999 launch rate, the pound edged up 0.2 percent to 78.16 pence.
"Sterling has really been driven by the downside for the euro against the dollar," said Marvin Barth, European head of FX strategy at Barclays, adding that investors were worried about Britain's close economic ties to the moribund euro zone. Barth also highlighted the political risks inherent in what is set to be a closely fought parliamentary election in less than four months' time, which could pave the way for a referendum on a British exit from the European Union.
Just one week into January, the pound has fallen more than in any month since February 2013. "The new information on the pound since the holiday season is weaker growth," said RBS currency strategist Paul Robson, pointing to downward revisions of gross domestic product and a run of poorer readings from purchasing manager surveys. Construction and industrial output numbers on Friday will be watched for signs of more economic weakness. Gilt prices fell modestly, following other major government bonds lower as investors piled into riskier assets like equities after the Federal Reserve expressed confidence in the US economy and on hopes of aggressive new stimulus in Europe. At 1628 GMT the 10-year gilt yield was up around three basis points at 1.642 percent.