LONDON: The pound dropped close to a record low against the euro and hit a two-week trough against the dollar on Wednesday as worries about the bleak economic outlook pressured the pound in thin, pre-Christmas trade.
The pound matched its low on a trade-weighted basis, while the euro stayed close to last week’s all-time high of 95.56 pence, keeping alive the prospect that it may soon breach parity against the UK currency.
Analysts said overall sentiment towards the currency remained very negative, with illiquid trading conditions exaggerating movements.
“The momentum in euro/sterling is so strong at the moment that you wouldn’t want to go against it,” State Street foreign exchange strategist Lee Ferridge said.
He added: “We have seen some fairly big moves today because of the very thin liquidity.”
There was further bleak news on the UK economy on Wednesday as the Royal Institution of Chartered Surveyors forecast that house prices would fall by 10 percent next year.
Meanwhile, a string of retailers have gone into administration, the latest being entertainment company Zavvi and menswear fashion chain The Officers Club.
Their failures provided a grim reminder that the nation’s economy is continuing to deteriorate.
At 12:15 p.m., the euro rose 0.6 percent to 95.021 pence, just below a session high of 95.33 pence, while the pound hit its low for the day against the dollar of $1.4659, its weakest in over two weeks.
Versus a basket of currencies, the pound was at 75.5, matching the low hit on Tuesday, its weakest on daily records held by the Bank of England going back to 1990.
So far this year, sterling has lost around a quarter of its value versus the dollar, while the euro has surged by around 30 percent against the pound as a deteriorating UK economy and falling interest rates took their toll.
Many analysts feel the euro could breach parity against the pound soon, helped by expectations of a widening yield gap between the UK and euro zone, where interest rates are currently 50 basis points higher than in the UK.
UK policymakers have suggested that borrowing costs could fall to near zero from their current level of 2 percent, while officials at the European Central Bank have not hinted at additional aggressive rate cuts from 2.5 percent.
“The ECB is being more hawkish and there are some investors that think these are good levels to enter long euro positions, which is helping euro/sterling,” UBS currency analyst Geoffrey Yu said
The pound matched its low on a trade-weighted basis, while the euro stayed close to last week’s all-time high of 95.56 pence, keeping alive the prospect that it may soon breach parity against the UK currency.
Analysts said overall sentiment towards the currency remained very negative, with illiquid trading conditions exaggerating movements.
“The momentum in euro/sterling is so strong at the moment that you wouldn’t want to go against it,” State Street foreign exchange strategist Lee Ferridge said.
He added: “We have seen some fairly big moves today because of the very thin liquidity.”
There was further bleak news on the UK economy on Wednesday as the Royal Institution of Chartered Surveyors forecast that house prices would fall by 10 percent next year.
Meanwhile, a string of retailers have gone into administration, the latest being entertainment company Zavvi and menswear fashion chain The Officers Club.
Their failures provided a grim reminder that the nation’s economy is continuing to deteriorate.
At 12:15 p.m., the euro rose 0.6 percent to 95.021 pence, just below a session high of 95.33 pence, while the pound hit its low for the day against the dollar of $1.4659, its weakest in over two weeks.
Versus a basket of currencies, the pound was at 75.5, matching the low hit on Tuesday, its weakest on daily records held by the Bank of England going back to 1990.
So far this year, sterling has lost around a quarter of its value versus the dollar, while the euro has surged by around 30 percent against the pound as a deteriorating UK economy and falling interest rates took their toll.
Many analysts feel the euro could breach parity against the pound soon, helped by expectations of a widening yield gap between the UK and euro zone, where interest rates are currently 50 basis points higher than in the UK.
UK policymakers have suggested that borrowing costs could fall to near zero from their current level of 2 percent, while officials at the European Central Bank have not hinted at additional aggressive rate cuts from 2.5 percent.
“The ECB is being more hawkish and there are some investors that think these are good levels to enter long euro positions, which is helping euro/sterling,” UBS currency analyst Geoffrey Yu said
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