Thursday December 4, 12:05 PM
Pound hits historic euro low before rate calls
LONDON (AFP) - The British pound hit a record euro low on Thursday, while the single unit dipped against the dollar ahead of expected interest rate cuts from the Bank of England and the European Central Bank.
In London trade, the pound dropped to 1.1499 euros -- the lowest level since the creation of the European single currency in 1999.
The euro meanwhile dipped to 1.2606 dollars from 1.2704 dollars late in New York on Wednesday.
Against the Japanese currency, the greenback dropped to 92.79 yen from 93.29 yen on Wednesday.
The Bank (NASDAQ: TBHS - news) of England (BoE) is increasingly forecast to slash the cost of British borrowing by one percentage point to 2.0 percent as the country heads towards recession and inflation slows sharply.
The European Central Bank (ECB) meanwhile is set to lower eurozone rates by at least half a percentage point from the current level of 3.25 percent with the 15-nation economic bloc already in recession.
The BoE decision is due at 1200 GMT, followed by the ECB's interest rate announcement at 1245 GMT.
"The onus turns to the Bank of England (and the) European Central Bank... today to determine to what degree they can take over the baton of monetary easing," said Calyon analyst Mitul Kotecha.
Fresh economic data on Thursday pointed towards a deep recession for Britain.
Sterling tumbled as it was revealed that British house prices slumped by a record 14.9 percent in the three months to November compared to a year earlier.
Central banks around the world have been slashing interest rates as the impact of the global financial crisis puts the brakes on economic growth.
The prospect of falling borrowing costs tend to weigh on currencies because lower interest rates makes them a less attractive investment.
Ahead of the BoE and ECB calls, Sweden's central bank said it had decided to slash its key interest rate by 1.75 percentage points to 2.0 percent to "dampen the fall in production and employment" owing to a global financial crisis.
New Zealand's central bank also cut its official interest rate by a record 1.5 percentage points to tackle a recession and further fallout from the global financial crisis.
Australia and Thailand chopped their key interest rates by a percentage point earlier this week.
Dresdner Kleinwort analyst Rainer Guntermann argued that the ECB might not deliver a deep cut as it seeks to avoid the threat of deflation -- or a prolonged period of falling prices.
"The ECB and the BoE are clearly poised to ease their policy stances further and 50-basis-point rate cuts are widely seen as a minimum," said Guntermann.
"The data flow would clearly be consistent with bigger rate cuts but there is a case for the ECB to go somewhat less aggressive as the eurozone seems less exposed to the risk of deflation."
The economy of the 15 nations sharing the euro entered its first official recession in the third quarter, EU data confirmed in a second estimate on Thursday.
Facing the worst financial crisis in generations, the bloc's combined economy shrank by 0.2 percent in the third quarter after contracting by the same amount in the second quarter.
The slump marks the first recession, which economists usually define as two consecutive quarters of contraction, that the bloc has suffered since it was formed in 1999.
In London trade on Thursday, the euro changed hands at 1.2606 dollars against 1.2704 dollars late on Wednesday, at 117.00 yen (118.55), 0.8667 pounds (0.8599) and 1.5335 Swiss francs (1.5377).
The dollar stood at 92.79 yen (93.29) and 1.2166 Swiss francs (1.2103).
The pound was at 1.4546 dollars (1.4769).
On the London Bullion Market, the price of gold fell to 771.34 dollars an ounce from 776.25 dollars late on Wednesday.
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