The Sterling drops dramatically against the Greenback as UK banks need a bail ou

The pound tumbled to its lowest since 1985 against the dollar on Wednesday, battered by the woes of the UK banking sector and the prospect of more interest rate cuts. Sterling's slide has accelerated after a government bank rescue plan unveiled earlier this week failed to reassure investors or to stem losses in banking stocks, and instead sparked market concern about the UK's mounting debt burden. Bank of England chief Mervyn King's suggestion the BoE could use unconventional measures to boost the money supply and stimulate the economy once it runs out of interest rate ammunition also helped to drive sterling down. The GBP/USD is currently trading at $.13870 as of 8:30am, GMT.

Investors should buy the euro against the franc after Swiss National Bank Vice President Philipp Hildebrand signaled officials may sell their currency to curb its appreciation, Goldman Sachs Group Inc. said. The 16-nation euro may climb 3 percent to an initial target of 1.55 Swiss francs, a team of Goldman Sachs analysts headed by London-based Thomas Stolper, wrote in a research note e-mailed to Bloomberg News today. Investors should exit the trade if the euro closes below 1.465 francs, the analysts said. “Direct or anticipated SNB intervention in the foreign exchange market,” is likely to help the euro “rally substantially,” the analysts wrote. “The expected risk reward for long euro-franc positions therefore looks very favorable. The EUR/CHF is currently trading at 1.5053 as of 8:45am, GMT.

The yen gained versus the euro and the dollar before a French report that economists say will show consumer spending fell last month, damping the appetite for higher-yielding assets funded in Japan’s currency. The pound approached a 23-year low versus the dollar before a U.K. government report tomorrow that may show the economy shrank the most since 1990, supporting the case for the Bank of England to cut interest rates next month. “We see sterling and the euro continuing to deteriorate as the economic fundamentals undermine not only growth differentials against the U.S., but also we see the European Central Bank and the Bank of England continuing to cut interest rates,” Michael Woolfolk, a senior currency strategist in New York at Bank of New York Mellon Corp. The USD/JPY is currently trading at 89.00 as of 8:55am, GMT.

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