Sterling was undermined by the slide in risk appetite during Wednesday.

Risk appetite deteriorated sharply in early US trading on Wednesday as fears intensified and volatility increased, but with a firm recovery later in New York as the Chinese yuan stabilised.

US 10-year yields also recovered from fresh 34-month lows near 1.60%. US equity markets rebounded strongly from intra-day lows.

The dollar registered net losses as market expectations over further Fed interest rate cuts increased, although USD/JPY recovered after a re-test of 7-month lows at 105.50.

Commodity currencies staged a tentative recovery as the US dollar faded. Oil prices were undermined by risk aversion and unexpected inventory build before recovering as Saudi Arabia pledged action.

There was strong demand for precious metals with gold at fresh 6-year highs above $1,500 per ounce before a correction.

Scandinavian currencies remained under pressure with the Norwegian krone at 10-year lows before a limited correction.

Sterling was undermined by the slide in risk appetite during Wednesday, especially given the UK economy’s dependence on overseas trade. Political concerns also persisted with increased preparations for a ‘no-deal’ Brexit continuing to undermine market confidence, especially with no immediate evidence of any breakthrough in negotiations.

The UK currency gained some protection from global central bank rate cuts and expectations of further monetary easing which would boost UK yields in relative terms, although there were also expectations that the Bank of England would adopt a dovish stance.

GBP/USD was unable to make any impression on a fragile dollar and settled just below 1.2150. RICS housing data recorded a decline in the headline reading to -9 from -1 previously with further evidence of caution given Brexit uncertainty. With risk conditions slightly firmer, Sterling secured a marginal advance on Thursday, but GBP/EUR held above 1.0800 ahead of Friday’s UK GDP release.

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