* Sterling trades at weakest since 1985 vs dollar
* Dollar/yen hits 13-day high after upbeat U.S. ISM data
* RBA holds rates at 1.5 pct, Aussie shows little reaction
By Jemima Kelly
LONDON, Oct 4 Sterling slid to its weakest level
in more than three decades against a dollar that was trading
stronger across the board on Tuesday, hit by fears over the
impact of Britain's departure from the European Union.
The greenback reached a 13-day high against a basket of
major currencies, helped by gains against the yen and by
an upbeat survey of the U.S. manufacturing sector that drove
investors to increase their bets on a rise in U.S. interest
rates by the end of the year.
The pound had already shed more than 1 percent the previous
day on the back of British Prime Minister Theresa May's
announcement on Sunday that the formal process that will take
Britain out of the EU will start by the end of March.
It extended those falls on Tuesday, slipping more than half
a percent to $1.2757, its weakest since June 1985. That
left it down 15 percent since Britain's June 23 referendum on EU
Many in the market worry that the government's stance points
to a "hard Brexit", in which Britain quits the single market in
favour of retaining control over migration and which could drive
an exodus of banks from London.
"The headlines we've been seeing in the last few days...have
been focusing the market's attention on the big structural
challenges that the UK is facing, particularly if it's going to
be 'hard' rather than a 'soft' Brexit," said HSBC FX strategist
Dominic Bunning, highlighting a report suggesting post-Brexit
Britain would not be supportive of the financial sector.
Bunning said investors were worried that if Britain's huge
financial services industry takes a big hit from Brexit, that
could help widen an already gaping current account deficit.
While the turmoil in the days and weeks following the EU
referendum spurred demand for safe-havens like the yen, analysts
pointed out that the latest slide in the pound had yet to
trigger similar reaction.
The dollar climbed 0.8 percent to hit a 13-day high of
102.495 yen on Tuesday.
"Right now the reaction to Prime Minister May setting a
departure deadline is mostly limited to the pound. A greater
negative impact on the British economy will have be witnessed
first for Brexit woes to cause broader risk aversion," said
Masafumi Yamamoto, chief currency strategist at Mizuho
Securities in Tokyo.
Some analysts said the dollar had also been boosted against
the yen in particular by a reduction in risk aversion, with
worries about the stability of Deutsche Bank having eased for
The Australian dollar showed little reaction to the Reserve
Bank of Australia's widely-expected policy decision to stand pat
on monetary policy, edging down 0.1 percent to $0.7664
For Reuters new Live Markets blog on European and UK stock
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(Reporting by Jemima Kelly; Editing by Keith Weir)