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By Sam Forgione
NEW YORK (Reuters) - Sterling edged off lows against the U.S. dollar on Friday, recovering slightly from a 10 percent plunge to its weakest in 31 years following Britain's vote to leave the European Union, on reassuring statements from central banks.
Sterling <GBP=D4> was last down 8.1 percent against the dollar, at $1.3662, after touching its weakest since before the 1985 Plaza Accord of $1.3228. Traders said Bank of England chief Mark Carney's comments that the central bank stood ready to provide extra support helped sterling recover.
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Despite the smaller losses, the currency was on track to post a 4.9 percent decline for the week against the dollar, which would mark its biggest weekly loss since January 2009. Sterling had touched $1.5018, its highest since mid-December, in Asian trading ahead of the result after polling firm YouGov said the campaign to keep Britain in the EU appeared to be ahead.
While the dollar gained against sterling because of its relative safety, investors favored the yen over the greenback, the euro, and sterling for its even greater perceived safety.
Sterling was last down 11.4 percent against the yen <GBPJPY=> at 139.64 yen after falling as low as 133.38 yen, its lowest in roughly three and a half years. The dollar also pared losses against the yen after touching a more than two-and-a-half- year low of 99.11 yen <JPY=>, but was still down 3.6 percent at 102.27 yen in afternoon U.S. trading.
While the dollar was last on track for its biggest one-day percentage drop against the yen since October 2008, speculation that the Bank of Japan could also act limited the yen's advance. Japanese Finance Minister Taro Aso said that excess volatility in currency markets was undesirable and he would respond to market moves when necessary.
"Central banks have been out trying to reassure the market, and this has caused the market to pause and reflect," said Douglas Borthwick, managing director at Chapdelaine Foreign Exchange in New York.
The euro <EUR=> pared losses against the dollar after touching its lowest level against the greenback in three and a half months of $1.0914, but was still hobbling and last down 2.5 percent at $1.1100.
Despite the reassurances from central bankers, analysts anticipated more weakness in sterling and volatility in the currency markets broadly in coming months. Chapdelaine's Borthwick said sterling could fall to $1.30 by the end of July.
The euro is expected to struggle given worries about the impact of Brexit on the euro zone economy. Analysts expect months of economic and political turmoil, which will dwarf the pressure on UK markets following sterling's "Black Wednesday" in 1992, when Britain was forced out of the pre-euro Exchange Rate Mechanism.
"It's a confidence shock," said Richard Franulovich, senior currency strategist at Westpac Banking Corporation in New York. "The economic news out of Europe is going to be pretty dire in the next few weeks."
The dollar was last up 1.37 percent against the Swiss franc at 0.9713 franc <CHF=> after the Swiss National Bank became the first major central bank to intervene and weaken its own currency in reaction to Britain's vote.
The dollar index <.DXY>, which measures the greenback against a basket of six major currencies, was last up 2.10 percent at 95.489 after touching its highest level in more than three months of 96.703. For the week, the index was set to gain 1.4 percent to notch its best week in about four months.
(Additional reporting by Anirban Nag in London; Editing by Phil Berlowitz and Dan Grebler)