Pound And Dollar Slump Further

The dollar and the pound have weakened further as interest rate cuts continue to undermine the two currencies. The dollar fell to 1.4717 and the pound to 95.05 pence.

On Tuesday, the Federal Reserve cut its key interest rate to a range of between zero and 0.25%, the lowest since records began in 1954.

With US rates set to remain low for many months, and with the head of the European Central Bank hinting recently that it is unlikely to cut its rate of 2.5% in January, the dollar is expected to remain weak against the euro.

With UK rates also lower than those in Europe, the euro is strengthening against the pound.

Amongst a plethora of bad economic data for the UK came a government report showing that the UK’s budget deficit widened to a record in November as tax revenue declined because of the worsening recession. A separate report showed mortgage lending fell 51 percent in November from a year earlier.

The pound has plummeted this week with other separate reports showed jobless claims rose last month at the fastest pace since 1991, house prices extended declines and inflation slowed.

On Wednesday, minutes from December's meeting of the Bank of England's Monetary Policy Committee (MPC) showed that it discussed the possibility of cutting rates by more than one percentage point. In the end, it cut rates to 2% from 3%.

The Financial Times report that the deputy governor of the bank, Charles Bean, told it that rates could approach zero.

The prospect of further sharp rate cuts by the Bank of England has sent the pound to a fresh low against the euro, and many commentators believe the pound could reach parity with the euro before long.