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Bank woes push pound below $1.40 Bank woes push pound below $1.40
(about 2 hours later)
Concerns about the UK banking sector have further undermined the pound, with the currency sliding below $1.40.Concerns about the UK banking sector have further undermined the pound, with the currency sliding below $1.40.
Sterling also hit a record low against the Japanese currency at 127.47 yen. Against the dollar, it reached $1.386, its lowest level since 2001.Sterling also hit a record low against the Japanese currency at 127.47 yen. Against the dollar, it reached $1.386, its lowest level since 2001.
Some analysts have suggested a fresh bail-out for the banking industry had prompted a sell-off of the pound.Some analysts have suggested a fresh bail-out for the banking industry had prompted a sell-off of the pound.
And record losses at Royal Bank of Scotland had shaken the UK's financial infrastructure, another said.And record losses at Royal Bank of Scotland had shaken the UK's financial infrastructure, another said.
RBS shares rose 6%, having plunged 67% on Monday after the bank had predicted a record loss. RBS shares fell 11%, having plunged 67% on Monday after the bank had predicted further losses.
But investors remain nervous with Lloyds TSB down by 26% on Tuesday and Barclays shares were 16% lower. Other banks also suffered with Lloyds TSB closing down by 31% on Tuesday, with Barclays shares 17% lower.
RBS reporting Britain's biggest ever corporate loss was "shattering news" which "shook the rafters of the City of London as well as the UK's entire financial infrastructure", said David Buik of BGC Partners. The prediction by RBS that it would see Britain's biggest ever corporate loss was "shattering news" said David Buik of BGC Partners. "[It] shook the rafters of the City of London as well as the UK's entire financial infrastructure", he said.
UK riskUK risk
The government's second attempt to bolster the UK's banking sector included an insurance scheme to cover bad debts held by banks and a £50bn fund to allow the Bank of England to lend money directly to businesses.The government's second attempt to bolster the UK's banking sector included an insurance scheme to cover bad debts held by banks and a £50bn fund to allow the Bank of England to lend money directly to businesses.
Investors fear that the cost of the banking bail-out could weaken the UK's national finances and hurt sterling - which has fallen sharply since last summer, when a pound was worth $2.Investors fear that the cost of the banking bail-out could weaken the UK's national finances and hurt sterling - which has fallen sharply since last summer, when a pound was worth $2.
POUND STERLING v UNITED STATES DOLLAR: 20 January 2009*All Times GMTPOUND STERLING v UNITED STATES DOLLAR: 20 January 2009*All Times GMT
Unusually, markets now rate the debt from some blue-chip companies as better risks than UK government debt.Unusually, markets now rate the debt from some blue-chip companies as better risks than UK government debt.
"Investors are concerned about the cost of the government [bail-out] measures and the implications they might have, with escalating borrowing and the possible doubling of Britain's debt ratio," said Neil Mackinnon, chief economist at ECU Group."Investors are concerned about the cost of the government [bail-out] measures and the implications they might have, with escalating borrowing and the possible doubling of Britain's debt ratio," said Neil Mackinnon, chief economist at ECU Group.
"There is mounting market talk that Britain's credit rating will be downgraded," he added."There is mounting market talk that Britain's credit rating will be downgraded," he added.
There's a link between the perceived weakness of the banks and a fall in sterling Robert Peston, BBC business editor Read Robert's blogThere's a link between the perceived weakness of the banks and a fall in sterling Robert Peston, BBC business editor Read Robert's blog
"There is no doubt that long-term investors see a risk in our UK government debt, more risk than the likes of BP and Unilever," Max King, a market strategist at Investec told BBC News."There is no doubt that long-term investors see a risk in our UK government debt, more risk than the likes of BP and Unilever," Max King, a market strategist at Investec told BBC News.
However, analysts at Barclays said that the actions the government were taking could help support the pound in the longer term.However, analysts at Barclays said that the actions the government were taking could help support the pound in the longer term.
"Over the medium term, the more proactive stance by UK authorities, especially relative to the euro area, should be positive for the UK economy and sterling," Barclays said."Over the medium term, the more proactive stance by UK authorities, especially relative to the euro area, should be positive for the UK economy and sterling," Barclays said.
The pound weakened against the euro, with one euro worth 92.7 pence - undoing much of its recent gains against the currency. The pound weakened against the euro, with one euro worth 92.3 pence - undoing much of its recent gains against the currency.