Tuesday January 20, 12:26 PM
British pound battered by banking-sector fears
LONDON (AFP) - The pound tumbled Tuesday to a seven-year low against the dollar and a record trough versus the yen, hit by mounting fears for the British economy and its struggling banking sector, dealers said.
The US dollar meanwhile won a modest boost ahead of the inauguration of US President-elect Barack Obama, who inherits an economy facing its worst crisis in decades, they added.
The British pound slid to as low as 1.3972 dollars, the weakest since July 2001 and well below the 2.0-dollar level above which it had traded as recently as July. Sterling also fell to strike a new record low of 125.90 yen.
Elsewhere, the euro was the weakest in almost six weeks against the dollar, despite a strong rebound in German investor confidence in January.
In early morning London trade, the euro fell as low as 1.2921 dollars, which was the lowest level since December 10. It later stood at 1.2956, down from 1.3062 dollars in New York late on Monday.
Against the Japanese unit, the dollar firmed to 90.81 yen from 90.53 yen on Monday.
Worries grew about the problems of Europe's banks after Britain's Royal Bank of Scotland (LSE: RBS.L - news) estimated on Monday that it had lost up to 28 billion pounds (40 billion dollars) in 2008.
"The pound has plunged... as market participants consider the prospect of full nationalization of certainly one and probably more of the major UK financial institutions," said Derek Halpenny, European Head of Global Currency Research at The Bank (NASDAQ: TBHS - news) of Tokyo-Mitsubishi (Munich: 857124 - news) in London.
Britain's biggest corporate loss ever came as London expanded its bank rescue programme, including an insurance scheme to protect against so-called toxic assets, but the announcement failed to calm investor worries.
"There's nothing like a good bank panic to put the skids under sterling," said Piers Cracknell, commercial director at currency specialists Moneycorp in London.
"Not only did the RBS story make investors nervous about British banks, it made them twitchy about the global financial sector as a whole.
"Nervousness means risk-aversion so the winners were the yen, the Swiss franc and the dollar."
The gloom in Europe risked dousing market optimism over Obama's plans to revive the US economy after he takes office on Tuesday, dealers said.
The new president is expected to push through a massive new stimulus package of up to 825 billion dollars to kick start the US economy.
In London trading, the euro changed hands at 1.2956 dollars against 1.3062 dollars late on Monday, at 117.66 yen (118.27), 0.9272 pounds (0.9078) and 1.4829 Swiss francs (1.4818).
The dollar stood at 90.81 yen (90.53) and 1.1444 Swiss francs (1.1343).
The pound was at 1.3972 dollars (1.4388).
On the London Bullion Market, the price of gold slid to 835 dollars an ounce from 838.05 dollars late on Monday.
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