* Sterling falls to weakest since 1985 vs dollar
* Dollar/yen hits 13-day high after upbeat U.S. ISM data
* Brexit worries not spreading into broader risk aversion
* 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 broadly stronger dollar on
Tuesday, hit by fears over the impact of Britain's looming
departure from the European Union.
The greenback climbed 0.7 percent to a 13-day high against a
basket of major currencies, helped by an increase in risk
sentiment and an upbeat survey of the U.S. manufacturing sector
that drove investors to up 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 a day earlier that the formal process to 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 $1.2737, its weakest since June 1985. That
left it down 15 percent since Britain's June 23 referendum on EU
Many in the market worry the British government's stance
points to a "hard Brexit", in which Britain splits entirely from
the single market in favour of retaining control over
immigration, which could drive an exodus of banks from London.
"Speculation about Brexit has picked up since the weekend,
which has put continuous downward pressure on sterling, but the
main driver today has been U.S. dollar strength," said
Commerzbank currency strategist Esther Reichelt, from Frankfurt.
"If you had to pick one currency right now, it's going to be
the U.S. dollar. Good data increases the chances of interest
rate rises and when the dollar appreciates, people are jumping
on that train."
While the turmoil in the days and weeks following Britain's
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, with risk appetite helped by
stabilising oil prices and an easing of worries over the
stability of Deutsche Bank.
"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 to be witnessed
first for Brexit woes to cause broader risk aversion," said
Masafumi Yamamoto, chief currency strategist at Mizuho
Securities in Tokyo.
The Australian dollar showed little reaction to the Reserve
Bank of Australia's widely-expected 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
markets see reuters://realtime/verb=Open/url=http://emea1.apps.cp.extranet.thomsonreuters.biz/cms/?pageId=livemarkets
(Reporting by Jemima Kelly; Editing by Andrew Heavens)