By Patrick Graham
LONDON (Reuters) - Sterling sank against the dollar on Monday as the defection of London Mayor Boris Johnson to the "Brexit" camp added to concerns that a British departure from the European Union is a real risk.
After a positive reaction to Prime Minister David Cameron's sealing of an EU deal on Friday with which to fight a referendum on June 23, the move by Johnson along with a handful of other senior ruling Conservatives drove a wave of selling in Asia.
The pound hit a 3-week low against the dollar of $1.4175 as European markets came on line, down 1.5 percent down on the day. If maintained, that would mark its biggest one-day fall in 11 months.
Sterling also fell sharply against euro, losing around 1 percent to 78.08 pence per euro..
Bets on sterling weakness over the next six months reached their highest in more than four years.
"The out camp were struggling to get a figurehead who was popular and Boris has given them that boost," said Alvin Tan, a strategist with French bank Societe Generale (PA:SOGN) in London.
"I think there is genuine worry that Britain might vote to leave and the uncertainty is going to rise into the referendum. Apart from the fall in cable, the implied volatility in sterling has moved up sharply."
The pound also dipped below 160 yen for the first time in more than two years.
The euro was broadly weaker, down almost half a percent against the dollar, but the mood on a number of the currency markets battered most by concerns over global growth was steadier.
The dollar firmed to 112.86 yen, 0.2 percent above its levels at the end of last week, and off Friday's one-week low of 112.30. The Australian and New Zealand dollar were both around half a percent higher.
Traders said investor appetite for risk was supported by expectations that G20 finance ministers and central bank governors may address routs in financial markets this year when they gather in Shanghai later this week.
Several bank economists have speculated that this may include new commitments to support growth with public spending, although most may down the chances of a grand bargain like the 1980s Plaza Accord.
"Ultimately, we anticipate the meetings will provide modest support to asset markets," Citi analysts said in a morning note.
"A continued build-up of expectations for a coordinated response to slow economic growth and recent market volatility could support risk appetite."