LONDON - The pound dropped to a record low against the yen and breached $1.40 for the first time since 2001 as the U.K.’s second bank-bailout plan in three months raised concern the financial crisis is deepening.
The British currency had its biggest drop against the euro in a month after the government of Prime Minister Gordon Brown said it will spend an extra 100 billion pounds ($142 billion) to support the nation’s banks and increase its stake in Royal Bank of Scotland Group. The euro weakened against the yen.
"Worries about the banking crisis are leading to more risk aversion," said Antje Praefcke, a currency strategist in Frankfurt at Commerzbank. "The market isn’t convinced that there’ll be a light at the end of the tunnel."
The pound slid to 125.96 yen as of 6:44 a.m. yesterday in New York, from 130.71 in London Monday, after trading at an all-time low of 125.86. It fell to $1.3954 from $1.4420, after breaching the lowest level since June 2001. The pound was at 92.94 pence per euro, from 90.59 pence. The yen strengthened to 117.06 per euro from 118.47, and 90.26 per dollar from 90.64.
Lloyds Banking Group slumped 42 percent to trade at the lowest level in at least two decades and Barclays slid 9.8 percent as shares dropped after Merrill Lynch said it has too little capital and will struggle with bad assets.
Monday’s British government package followed October’s 50 billion-pound bank recapitalization program. U.K. debt may now be greater than the government forecast on Nov. 24, said Richard Grace, chief currency strategist at Commonwealth Bank of Australia.
"I would urge you to sell any sterling you might have," Jim Rogers, chairman of Singapore-based Rogers Holdings, said in an interview with Bloomberg Television. "It’s finished. I hate to say it, but I would not put any money in the U.K."
Rogers correctly predicted the start of the commodities rally in 1999. In January 2008, he advised investors to sell the U.S. currency. The Dollar Index traded on ICE futures, which tracks the greenback against six major trading partners, rose 6 percent last year.
The pound weakened versus all of the 16 most-active currencies as a government report showed the inflation rate fell in December to the lowest level since April, giving the Bank of England more room to cut interest rates.
Worsening economic indicators have stoked concern among voters about Brown’s leadership.