Persistent fears that the Government is pursuing a policy of benign neglect towards sterling and plans further interest rate cuts drove sterling to an all-time low of DM2.3485 at one stage. By the close the pound was 1.45 pfennigs lower at DM2.3640.
But sterling was also weaker against other currencies. Measured on the trade-weighted index (1985=100), the pound finished 0.6 points down at a record closing low of 76.6 per cent.
After coming under heavy selling pressure from traders in the Middle and Far East, sterling briefly collapsed to 76.2 per cent in mid-morning. Two influential speculators - Bank Negara Malaysia and George Soros's Quantum fund - were rumoured to be sellers.
The pound's fall helped to push share prices down sharply. In addition to worries that a large rights issue will be announced today, the equity market was undermined by concern over higher costs. The FT-SE 100 dropped 47 points before rallying to close 38.7 points down at 2,831.3.
Alison Cottrell, of Midland Global Markets, said: 'There is no perception yet of there being any floor for the pound.'
The pound's fall coincided with a sharp rise in the yen amid indications that Japan may cave in to G7 pressure for a higher yen to curb Japan's trade surplus.
The Treasury confirmed yesterday that finance ministers of the Group of Seven leading industrial states will meet in London later this month.
The dollar fell by 2.85 yen to Y121.35. Although predictions abound that the yen's rise will continue in the run-up to the G7 talks, some analysts questioned whether the advance would be sustained in view of Japan's very low interest rates and loosening fiscal policy.Reuse content