Sterling slumps to eight-year low after second bank bail-out

Sterling slumps to eight-year low after second bank bail-out

Sterling tumbled below the $1.40 mark against the dollar for the first time in almost a decade and fell against the rest of the world's major currencies as the UK Government's second bail-out of the country's banks underlined the dangers facing the economy.

By Angela MonaghanLast Updated: 6:37PM GMT 20 Jan 2009


The pound, which was trading above the $2 mark less than 12 months ago, slumped to below the $1.40 mark for the first time since June 2001 in morning trading in London after registering a fall of more than three cents yesterday.
Currency traders have been aggressively selling the pound as the depth of the recession facing the UK becomes clearer. Interest rates are now at 1.5pc and most analysts expect the Bank of England to continue cutting close to zero in an effort to get money moving around the economy again.
"Sterling has struggled due to the announcement of the new policy measures, in addition to reports of big losses in the UK banking sector," analysts at UBS said this morning.
Analysts are concerned that the second bail-out will substantially increase Britain's debt beyond the 8pc of gross domestic product projected by the Chancellor Alistair Darling at the Pre-Budget Report in November.
Prime Minister Gordon Brown admitted yesterday that he does not know how much the second bail-out of the banks will cost.
Steve Barrow, currency strategist at Standard Bank, predicts that the pound will slide to around $1.35 against the dollar over the next month or two.
He argues that although the US banking system has been hit by similar difficulties to the UK, sterling is particularly vulnerable to a weak performance from the financial sector and banking shares.
"One clear reason for the closer relationship in the UK is that the dollar can act as a safe-haven in times of global stress," he said.
Sterling is now down 28pc against the dollar in the past year and in December sterling teetered on the brink of parity with the euro for the first time.
This morning it tumbled more than 2p to 92.75 and fell to a record low of 124.77 versus the yen.
Jim Rogers, the co-founder of Quantum fund with George Soros, today told Bloomberg News that “I would urge you to sell any sterling you might have.”

http://www.telegraph.co.uk/finance/financetopics/recession/4295391/Sterling-slumps-to-eight-year-low-after-second-bank-bail-out.html