Cable has fallen a remarkable 400 points at the starts of this week’s trade hitting lows not seen since the end of January. What’s behind the sell off and is it likely to continue? Tonight’s drop in the pound was triggered by yet more bad news from the UK banking sector. Shares of Lloyds PLC tumbled 14 percent after UK’s biggest lender ceded corporate control to the government in return for state guarantees covering more than $367 Billion of assets.

Cable started the week with a 200 point drop as investor worries over the state of UK banking sector pressured the Footsie and sent the currency tumbling below the 1.4000 level for the second time this month. Shares of Llyods PLC tumbled 14 percent after UK’s biggest lender ceded corporate control to the government in return for state guarantees covering more than $367 Billion of assets. The news dragged the Footsie lower by more than 1% and pressured the pound into the early morning London trade.

Not a pleasant start of the week for pound bulls with cable crushed on the open of London trade, falling nearly 300 points from the day’s high in response to the second version of the UK rescue plan of its banking sector. The plan announced by UK Chancellor of Exchequer Alistair Darling proposed creating an insurance scheme to underwrite the toxic debts on the books of UK banks. The scope of the program could reach 50 Billion pounds. Additionally UK authorities increased the government stake in RBS to 68% from present 58% share. UK PM Gordon Brown went out of his way to criticize the RBS management, noting that the bank was wholly irresponsible it its investment decisions and that most of its losses came from its exposure to US mortgage backed securities as a result of RBS’s acquisition of ABN-Amro.

The pound was decimated at the start of weekly trade today dropping more than 200 points off its highs as traders absorbed the details of new UK government rescue package of the banking sector.