11 Dec, 2008

Pound in another record euro low

The British pound has continued its sharp decline against the euro, reaching a new record low of 1.1238 euros on Thursday. It is at the lowest level since the euro was launched in 1999. Meanwhile, the pound gained one cent against the US dollar, reaching $1.4924 in afternoon trading. The dollar also fell against other currencies, hitting the lowest level against the euro and the Japanese yen for the past six weeks. Sterling was pushed lower after figures from the Confederation of British Industry confirmed a sharp downward trend in manufacturing. The UK currency is expected to remain under broad selling pressure amid a grim outlook for the British economy. However, some analysts have expressed doubts that the rise of the euro against the pound is a sustainable trend, particularly if European economies also continue to weaken. “If the eurozone is being perceived to still have rates at substantially higher levels, then obviously there’s a positive rate spread, but I’m not convinced that its ultimately going to be positive as the dynamics of the eurozone economy are pretty weak,” Rabobank markets strategist Jeremy Stretch said. Interest rates have been cut both in the UK and in the eurozone, but they remain higher in the 15-member euro currency area. The Bank of England has made two sharp cuts in rates, bringing them down to 2{6060b2de664e4eaa3e7b7e86961ce2c4bbd7a29b6c1097abf8257a4e5b07383e}, and many analysts expect more in the pipeline. Lower interest rates make it less attractive for foreigners to hold pounds. A weaker pound is better for the UK exporters but is bad news for British holidaymakers who plan to go abroad during the Christmas season, and also makes imported goods more expensive. Meanwhile, the dollar’s weakness has been attributed to the growing difficulties of the auto industry, whose $34bn bail-out is being negotiated in Congress.

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