Sterling slipped to a new two-week trough after Bank of England Governor Andrew Bailey reiterated that the central bank would end its emergency bond-buying program on Friday and told pension fund managers to finish rebalancing their positions within that time frame.
However, the pound rebounded slightly after a report in the Financial Times said the BoE has signalled privately to lenders that it's prepared to prolong its bond purchases.
Sterling which earlier touched $1.0925, marking a fresh low since Sept. 29, bounced 0.4% to $1.1008 after the FT report.
Gilt yields had soared earlier on Tuesday following the BoE governor's comments, lifting yields in the U.S. and elsewhere.
GBP remains at risk of sudden drops because of uncertainty about government debt sustainability and the dislocation in UK pension (superannuation) funds that has spilled over into UK government bond market.
Worries that continued aggressive policy tightening by the Fed and most of its peers will lead the global economy into recession have been a major driver of risk sentiment over recent months.
The International Monetary Fund warned on Tuesday that countries representing a third of world output could be in recession next year, even as it urged central banks to keep up their fight against inflation.
Recent strong U.S. labour market reports have scuppered hopes among some market participants that Fed policymakers may slow the pace of rate hikes into year-end.
The U.S. consumer price report, due on Thursday, could be a flashpoint for currency volatility, and a sharp move higher in dollar-yen could become a trigger for intervention.
