Pound Falls to Record Versus Euro


The pound fell to a record low against the euro as investors bet the economic slowdown will prompt the Bank of England to cut its benchmark interest rate next month, after leaving it unchanged today.

The bank's nine-member Monetary Policy Committee, led by Governor Mervyn King, will lower its key rate a quarter- percentage point Feb. 7, derivatives prices indicate. Policy makers held borrowing costs at 5.5 percent at today's meeting while assessing the effects on the economy of last month's quarter-point reduction.

Against the euro, the pound dropped to 75.18 pence by 2:45 p.m., the lowest since the common European currency's introduction in 1999, from 74.84 pence yesterday.

The U.K. currency rose to as high as $1.9667 after the rate decision and was recently at $1.9611, from $1.9585. It earlier slipped to a 10-month low of $1.9541.

Britain's currency extended declines versus the euro after European Central Bank President Jean-Claude Trichet said today there are ``upside risks'' to euro-region inflation in ``the medium term.'' Trichet spoke during a press conference after the Frankfurt-based bank left its main lending rate at 4 percent.

The difference in yields, or spread, between two- and 10- year gilts notes narrowed 2 basis points to 13 basis points. The so-called flatter yield curve suggests investors have pared their holdings of short-dated securities as they become less pessimistic about the near-term economic outlook.


TradingEconomics.com, Bloomberg
1/10/2008 8:17:42 AM