Wednesday November 12, 01:30 PM
Pound falls to historic low versus euro
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LONDON (AFP) - The pound hit an all-time low against the euro on Wednesday as a report from the Bank of England led dealers to predict further cuts in interest rates
In morning trading in London, the euro rose to 0.8215 pounds -- the highest level since creation of the European single currency in 1999.
The euro rose to 1.2528 dollars from 1.2523 dollars late in New York on Tuesday.
The Bank (NASDAQ: TBHS - news) of England's economic outlook report "is extremely downbeat, and leaves absolutely no doubt that further substantial interest rate cuts lie ahead, almost certainly starting in December," said Howard Archer, chief Britain economist at IHS Global Insight.
The Bank of England (BoE) said on Wednesday that the British economy was probably already in recession and faced a distant risk of deflation as a global financial crisis takes its toll.
In a press conference to discuss the report, BoE governor Mervyn King acknowledged that deflation was a possibility in late 2009 should British interest rates remain at the current level of 3.0 percent.
Traditionally, lower interest rates make a currency less attractive to investors even though they can help to boost economic growth.
Elsewhere on Wednesday, the dollar was down versus the euro and yen as traders focused on the deteriorating health of the global economy.
The European Central Bank published on Wednesday details of its latest operations designed to boost interbank lending on eurozone money markets.
The central bank has been providing massive amounts of euros, dollars and Swiss francs to eurozone banks to get them lending to each other again after uncertain financial conditions caused the crucial markets to freeze up.
On Wednesday the ECB said it would lend 60.574 billion dollars for one week against collateral at a fixed rate of 1.43 percent.
Market participants were meanwhile hoping for positive news from a summit on the financial crisis to be held in Washington at the weekend, although the event itself might not move the market, traders said.
"The summit itself might not solve all the problems in the financial market. But it will be an important meeting and people are looking at it with some hope for a fix for the market," said Osamu Takashima, chief analyst at the Bank of Tokyo-Mitsubishi UFJ.
The euro changed hands at 1.2528 dollars against 1.2523 dollars late on Tuesday, at 121.94 yen (122.23), 0.8215 pounds (0.8138) and 1.4874 Swiss francs (1.4873).
The dollar stood at 97.25 yen (97.60) and 1.1861 Swiss francs (1.1874).
The pound was at 1.5340 dollars (1.5384).
On the London Bullion Market, the price of gold fell to 731.25 dollars an ounce from 733.75 dollars late on Tuesday.
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