Sterling fell to a nine-month low against the dollar and a one-year low on the yen today, hurt by political uncertainty after an opinion poll showing the chance of an inconclusive result at a British election due in months.
Speculation the UK could revive its asset buying programme, after the Bank of England said last week it might take such a step if the economic outlook worsened, continued to weigh on the pound along with expectations of a sterling outflow from Prudential's purchase of the Asian unit of AIG.
An opinion poll out yesterday suggested Britain's ruling Labour Party could remain the biggest party after this year's election but without a majority in parliament, a result which could hamper decision-making and undermine a fragile UK recovery.
Traders said the news prompted many to add to short positions in the pound, sending it as low as $1.5129. It has shed more than 6 per cent this year against the dollar.
Sterling also fell to its lowest in a year on the yen, dropping to around 134.50 yen, and the euro rose 0.3 per cent to 89.73 pence.
The BOE holds a rate meeting on Thursday and while analysts expect it to hold rates at 0.5 percent and maintain the pause in its quantitative easing programme, market players will look for any hints about its asset-buying measures.
American International Group (AIG) agreed to a $35.5 billion sale of its Asian life insurance unit to Prudential, sources said, with Prudential set to pay $25 billion in cash and the rest in equity.
The dollar index edged higher 0.2 per cent to 80.52, supported at the margins by improving US economic data.
Traders said despite a recent bounce, sentiment on the euro remained negative. Data from the Commodity Futures Trading Commission showed net short euro positions rose to 71,623 contracts in the latest week to February 23rd, a fresh record, up from 59,422 contracts in the prior week dollar.
The euro dipped 0.2 per cent to $1.3600 from late on Friday when it gained 0.4 per cent. It was boosted by speculation that euro zone policymakers were close to stitching up a deal to bailout debt-laden Greece..
IMM data shows long US dollar positions at their highest since Sept 2008, while short euro positions are at a record peak.
Speculators also added to long positions in the dollar and the yen. The dollar stood at 89.13 yen, up from its lowest levels in a month near 88.70.