The pound held steady on Thursday near the 5-year low against the dollar hit the previous day, but the mood was still fragile on concerns about a looming recession and ongoing market turmoil, Reuters reported.
The pound was still smarting after Bank of England Governor Mervyn King said late on Tuesday that the economy was probably entering its first recession in 16 years.
With fears growing over how severe the economic downturn will be, Prime Minister Gordon Brown echoed the same sentiments on Wednesday, saying Britain along with other major economies was likely to fall into recession.
"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."
At 8:51 a.m., sterling was up 0.1 percent on the day at $1.6311, recovering from a five-year low hit on Wednesday at $1.6148, according to Reuters data.
The euro was down 0.4 percent at 78.54 pence. Against the yen, the pound was down 0.1 percent at 158.78 yen.
Expectations for steep rate cuts from the current 4.5 percent in coming months will likely keep pressure on sterling, analysts said.
Minutes released on Wednesday showed Bank policymakers unanimously backed this month`s emergency interest rate cut but shed little light on how far borrowing costs would ultimately fall.
Bank policymaker Kate Barker said on Thursday that it could be months before businesses see any improvement in conditions as a result of the measures taken to combat the credit crisis.
A Reuters poll on Wednesday showed economists expect the Bank to cut interest rates by 50 basis points at its November meeting, and rates would fall to 3.5 percent by March.
Traders will keep an eye on UK retail sales for September due out at 9:30 a.m., although recent figures have been volatile.
Sterling could see renewed selling if the data is much weaker than expected, traders said.
Economists expect September retail sales to fall 0.9 percent from the previous month, according to a Reuters poll.
