The British Pound was the most miserable currency in the last 24 hours as foreign exchange traders limited their exposure to the pound ahead of a crucial decision on interest rates at Europe's central bank on Thursday.
As analysts predict volatility to remain in its escalated status, the pound crashed 0.41 percent against the Euro and 0.55 percent against the US greenback ahead of the final bell.
But the currency has since regained some of its losses as markets shifted through the session: the GBP-to-EUR forex rate is currently pegged at 1.1822, the GBP-to-USD forex rate climbed back up to 1.3024.
The pound has backpedaled to a one-week cellar versus its key counterparts as worries about Britain's future ties with the European Union emerge onto the radar of money markets.
Ahead of a sharp Bank of England interest rate verdict, the sterling has been lifted and dragged in the past weeks by speculations over whether a rate cut will push through.
Typically, a central bank would not reduce rates as activity is picking up, lest they risk triggering unnecessary inflation.
Analysts said that if the government sought to boost the economy, after years of austerity, the banks risk overcooking the economy by slashing rates.
Market consensus based on finance market pricing is that the odds of an interest rate reduction is in the 50-55 percent level.
If the currency continues its downward trajectory, it would indicate a money market that has decided to front-run a rate reduction, with capitalists choosing to take cash off the table, analysts noted.
The further the pound drops ahead of the BOE's rate decision, the more robust the recovery will likely be if bank regulators leave rates untouched.
Volatility is therefore guaranteed to be a highlight of currency markets this week, and analysts said traders should not bet on any moves either lower or higher.
According to London-based CIBC Capital Markets currency planning head Jeremy Stretch, it has long been the scenario for Brexit that "issues have been off the agenda for a while, and some signs of friction between the two sides are showing."
The British pound was last struggling at 0.35 percent at $1.3007, a one-week low. It was a third of a percent weaker versus the euro at 84.66 pence, its lowest mark in nearly seven days.
Latest figures in market positioning posted late Monday by the US Commodity Futures Trading Commission shows that, although money speculators have moderately trimmed down their so-called net long in sterling, they still keep a substantially large long position.
