The pound slumped to a 10-month low against the dollar amid worries that plans to slash the UK’s soaring deficit could be delayed by political uncertainty.
Fears of a hung parliament after the looming General Election have been fuelled by a narrowing Conservative poll lead and sent sterling to a below $1.50 low at one point yesterday.
The pound was also on the back foot against the euro, falling as low as €1.09 before clawing back some ground against both currencies.
“If there is one thing markets hate it is uncertainty, and the prospect of a hung parliament could keep sterling on the defensive until the General Election is done and dusted,” Capital Economics' John Higgins said.
The pressure on the pound comes as markets look for a decisive general election result and a clear plan to sort out the UK’s dire public finances without delay.
The second successive monthly drop in mortgage approvals during January also cast doubts over the strength of the recovery and signalled that rate hikes could be a long way off.
Meanwhile, comments from several members of the Bank of England's rate-setting committee that more quantitative easing —creating electronic money — could be needed have also weighed on the currency.
Mark O’Sullivan, director of dealing at foreign exchange firm Currencies Direct, said: “The market has been running out of patience with sterling and it has been brewing for a while.”
Sterling has lost more than 10 cents against the dollar during the past month — hitting holidaymakers in the pocket, putting upward pressure on petrol pump prices and adding to import costs for businesses.
Northern Ireland has been one of the few regions to benefit from the weak pound, with retailers seeing a surge in cross-border shoppers from the Republic over the last 18 months.
The plummet from $1.52 to below $1.48 was the pound’s biggest one-day fall since January last year, according to analysts at ING Commercial Banking. Sterling hit a 24-year low of 1.35 dollars last year in the worst depths of the recession.