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Old 12-30-2008, 02:45 AM   #26
Antaletriangle
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Join Date: Sep 2008
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Default Re: Pound suffers worst fall in 41 years

http://www.ft.com/cms/s/0/428b5e20-d...077b07658.html
Sterling falls to fresh low against euro
By Peter Garnham

Published: December 30 2008 02:00 | Last updated: December 30 2008 02:00

The pound dropped to a fresh low against the euro yesterday, falling closer to parity against the single currency on expectations that UK interest rates were heading lower.

The pound has suffered against the euro, dropping a record 17 per cent this month, as investors bet that the Bank of England would slash interest rates, which stand at 2 per cent, at its policy meeting next month.

Indeed, Bank officials have hinted that the UK could follow the US and adopt a quantitative easing approach to monetary policy - pumping money into the financial system once rates, in effect, hit zero. In contrast, the European Central Bank has adopted a more hawkish tone, indicating that it will keep eurozone interest rates on hold at 2.5 per cent as it assesses the impact of the global economic slowdown.

The gloom surrounding the UK economy was heightened as figures revealed that house prices dropped 8.7 per cent in 2008.

Reports over the weekend suggesting that the UK economy could shed 600,000 jobs next year also weighed on sterling.

Meanwhile, traders said escalating political tensions in the Middle East were providing support to the euro and Swiss franc, boosting safe-haven flows into both currencies.

The pound fell to a record low of £0.9799 against the euro before recovering some poise to stand down 0.5 per cent at £0.9640 late in New York.

Sterling also fell 2.9 per cent to SFr1.5187 against the Swiss franc and lost 1.1 per cent to Y131.41 against the yen.

On a trade-weighted basis, the pound fell to 73.7, the lowest on daily records kept by the Bank the England, which date back to 1975.

But the pound's losses were less acute against the dollar, easing 1.1 per cent to $1.4510, because the dollar was also on the back foot heading into the new year.

Analysts said the greenback had lost its appeal since the onset of quantitative monetary easing in the US this month.

Daragh Maher, of Calyon, said: "In this new environment, disappointing US economic data is seen as building the case for even more aggressive quantitative easing and therefore a greater supply of dollars and consequent dollar weakness."

The dollar fell to $1.4361, before it pared losses. Late in New York the dollar was up 0.5 per cent at 1.4 per cent to $1.4256 against the euro and was down 0.8 per cent to SFr1.0594 against the Swiss franc.

Elsewhere, the Russian authorities took advantage of the weak dollar to continue their devaluation of the rouble. The Russian central bank let the rouble fall 1.8 per cent to 34.31 against its euro/dollar basket, the largest fall since the introduction of the basket in 2005 and its ninth mini-devaluation over the past month.
Copyright The Financial Times Limited 2008
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