Sterling plunged down against dollar and

Sterling plunged against the low-yielding dollar and yen on Friday. Investors analyzed the prospect of a longer economic downturn after recent financial turmoil prompting them to avoid riskier assets.

Trade lacked direction as investors stick to combined gains earlier in the week.

Share prices were vulnerable as European stocks see sharp gains at the open but removing much later in the day.

The yen gained more against major currencies as investors unwind riskier bets. Sterling was down 0.8 percent at 174.55 yen after hitting a low of 174.00 yen.

The pound was little changed at $1.7294 after sliding as low as $1.7252, and the euro was flat 77.75 pence.

Tom Levinson, forex strategist at ING in London, “Cable has benefited from the UK's proactive response to the banking crisis, but the focus will turn to how quickly these measures can be implemented. More rate cuts are on the way, and the economic data is likely to be very soft, so any sterling stability that we're seeing now is probably going to be short-lived."

Sterling remained well above a 5-year low against the dollar hit last week as investors sensed the UK government has taken major advances in slowing a banking crisis here.

Central Banks cutting interest rates

Due to the growth of expectations, the central banks will cute interest rates to bolster a sagging economy. This week’s data showed a sharp rise in unemployment and it is expected to worsen.

Data also showed UK inflation surged to an annualized 5.2 percent in September although prices are expected to fall in coming months due to a steep drop in crude oil prices.

After the coordinated rate action, a Reuter’s poll showed most economists expect the UK central bank to cut rates by an additional 50 basis points by year-end

In the mean time, interbank cost of borrowing the dollar, sterling and euro fell on Friday. It shows evident sharp decline in short-term rates at the very short end. These suggested central banks' liquidity provisions are beginning to thaw frozen money markets

"Major currencies are fairly stable today, although big worries are the emerging economies amid a likely global recession," said Paul Robinson, chief sterling strategist at Barclays Capital in London.