Sterling fell on Tuesday after concerns about the European banking sector dented risk appetite, while traders awaited testimony from Bank of England Governor Mervyn King to see if he would continue to highlight the benefits of a weak UK currency. Skip related content
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Traders sold the pound, which is considered a high-risk currency after reports that the majority owners of WestLB were threatening to withhold support for the struggling German regional bank underlined ongoing weakness of the global banking sector.
"Risk appetite is looking soft today ... on the back of negative news on the various parts of banking sector," said Jeremy Stretch, strategist at Rabobank in London.
"Risky currencies are trying to find support."
Market participants added that reports from ratings agencies focussing on the weakness of major banks around the world was also weighing on sterling, given the UK economy's dependence on financial services.
The euro was up slightly at 90.17 pence.
Some traders noted that speculative M&A flows were prodding sterling movements, although overall trade was quiet early in the London session.
King, Bank Deputy Governor Paul Tucker and other members of the central bank's policy-setting committee will offer testimony to a Treasury Committee from 9:45 a.m. regarding its inflation report released earlier this month.
Analysts at UBS said all members speaking on Tuesday voted in favour of extending quantitative easing at this month's meeting, adding in a note: "We expect the general tone to remain dovish and to affirm the need for a weak pound for economic rebalancing."
(Reporting by Naomi Tajitsu, editing by Mike Peacock)
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