Sterling fell by almost a full cent against the dollar on Tuesday after Bank of England governor Mark Carney said now was not the time to raise interest rates, dashing some investors' hopes that the central bank had shifted in that direction.
Speaking to London's banking community alongside finance minister Philip Hammond a day after Brexit talks started, Carney cited weak wage growth, mixed signals on consumer spending and business investment as reasons for not moving to raise interest rates any time soon.
Sterling sank from $1.2758 to a one-week low of $1.2669 after the text of Carney's postponed Mansion House speech was released. It also fell over half a percent to a five-day low of 88.02 pence per euro.
"Market sentiment towards sterling had shifted towards a possible rate hike following a shock shift to 5-3 last week from the MPC (Bank of England monetary policy committee)," said Mizuho's head of hedge fund FX sales, Neil Jones.
"The balance (of sentiment is) being addressed somewhat at Mansion House."
British government bond futures surged by around 50 ticks after the release of Carney's speech and last stood at 128.46, up 40 ticks on the day.
Short sterling interest rate futures also rose strongly, especially for the late 2018 and early 2019 contracts, as the market priced in a shallower path of interest rate hikes in future years.
The 10-year gilt yield dipped below 1 percent for the first time since last Thursday.
Britain's FTSE 100 exporter-heavy index of stocks rose 0.4 percent from a lacklustre open.