Sterling hovered above a 23-year low hit against the dollar yesterday, erasing gains made after a source told Reuters the currency's slide would be discussed at the next meeting of the Group of Seven industrialised countries in February.
The pound has come under severe pressure this week as a government rescue package for struggling British banks failed to reassure investors or stem losses in banking stocks. At one point yesterday, sterling plunged to $1.3620, its lowest since 1985.
At 9.30am in London sterling was trading at $1.388 and at €1.06.
US bank shares last night erased some of their losses made earlier in the week and fuelled a Wall Street rally yesterday, helping Asian stocks cling to small gains. Tokyo's Nikkei stock average gained 1.9 per cent today.
But that did little to soothe worries about global financial sector fragility and investors continued to shift funds into the perceived safety of the yen and the dollar.
"Sterling still looks far from hitting a bottom with mounting expectations for further and bigger interest rate cuts from the Bank of England to combat the quickly deteriorating economy," said a senior trader at a Japanese trust bank.
Traders said forecasts for further shrinking interest rate gaps between Japan and European countries gave the yen additional strength against sterling and the euro. The BOJ kept rates at 0.10 per cent as widely expected after ending a two-day policy meeting today.
Though it stood pat on rates, the central bank said it would buy corporate bonds maturing within a year and start purchasing commercial paper to ease corporate financing and warned the country faced two years of deflation.
The dollar was down 0.3 per cent at 89.15 yen. It had rebounded from yesterday's low of 87.10 yen, the lowest since July 1995.
Reuters