The British pound tumbled from 1.4910 to 1.4450 on Monday on speculation British Chancellor of the Exchequer Alistair Darling’s second bank rescue in three months would not be sufficient to revive the recession-mired economy although Darling said the government will extend a Bank of England program to inject money into the financial system and proposed insurance to underwrite mortgage-backed debt and toxic assets.

Investors expect the Bank of England will cut interest rate further from current historic low of 1.50%. Sterling dropped sharply against the Japanese yen from 135.86 to 130.49 on risk aversion. Euro rallied versus the sterling from 0.8966 to 0.9093.

ECB president Jean-Claude Trichet said many economists ignored build-up of imbalances in economy n indicated 2009 will be 'very difficult' and that ECB governors think 2009 growth will be substantially lower than the forecast made in early December. Standard & Poor's said it cut Spain's debt rating to AA+, warning of a severe deterioration in public finances, prompting fears that Portugal and Ireland could prove to be next after Greece's downgrade last week. The single currency fell sharply fm 1.3387 to 1.3118 against the dollar.

The greenback fell against the Japanese yen from 91.33 to 90.16. Euro tumbled from 122.20 to 118.48 versus the Japanese unit due to fears about the grim outlook for the global banking sector.

Trading is relatively thin as U.S. markets were closed on Monday and ahead of the inauguration of Barack Obama as U.S. president. Tuesday will see the release of Japan’s tertiary industry index and consumer confidence, U.K. CPI and RPI and German ZEW index.