Sterling pushed to fresh 5-year low vs dollar

By Tamawa Kadoya

LONDON (Reuters) - Sterling hit a five-year low against the dollar on Thursday, driven by broad buying of the U.S. currency and Japanese yen at the expense of higher-yielding currencies.

Rampant risk aversion has driven the dollar and yen up sharply, sending the pound down more than 7 percent against the U.S. currency this week and setting it on track for its biggest monthly percentage drop since Britain's exit from the European Exchange rate mechanism in late 1992.

Falling global share prices and a sharp reversal in emerging market currencies strengthened momentum against high-yielding majors, including sterling, as investors fretted over the prospect of a prolonged global recession.

"Share prices are down but U.S. stocks were up a bit, so we are seeing risk aversion in a made-in-forex world," said Robert Minikin, senior FX strategist at Standard Chartered.

At 3:10 p.m., sterling was down one percent at $1.6101, having hit a five-year low of $1.6046, according to Reuters data.

The pound fell 1.7 percent to a eight-year low of 155.53 yen. The euro was up 0.7 percent at 79.46 pence.

Sterling was still smarting after Bank of England Governor Mervyn King said late on Tuesday that the British economy was probably entering its first recession in 16 years.

"The market is still incredibly nervous," said Paul Robinson, chief sterling strategist at Barclays Capital. "The more risky things appear to be, the worse it is for sterling compared with the dollar and yen, and vice versa."