BoE comments on the pound's long-run recovery prospects have further weakened its demand this morning

Underlining instability in the British economy weighted heavily on the pound on Friday, losing 1.1% to the greenback to close down at $1.6270.

• Traders sold the pound after banking concerns resurfaced in the UK, undermining any improvement in sentiment toward London’s financial sector and the UK currency.
  
• Reports that tougher-than-expected capital requirements were likely to be applied to the proposed exit of Lloyds from the government’s asset-protection scheme sent the pound sliding to a two-week low of 1.6234.
  
• Friday also saw an easing off in risk aversion as investors remained cautious of holding positions over the weekend, which encouraged demand for haven currency allowing the dollar to broadly strengthen.
  
• Demand for the greenback also came as the rally in global equities slowed considerably as investors booked profits on the back of a consecutive 4-day climb.
  
• The ailing pound has slid further in trading this morning after the BoE said that sterling’s long-run sustainable FX rate may have fallen due to an increased focus on the UK’s economic imbalances following the credit crisis.