Page last updated at 09:53 GMT, Tuesday, 2 September 2008 10:53 UK

Struggling sterling hits new lows

Pound coins
Analysts are not sure how much more the pound will weaken

The pound has fallen to two-and-half-year low against the US dollar and record low against the euro amid fears about the health of the UK economy.

Sterling fell as low as $1.7850, and was trading at 81.62 pence per euro.

Measured against a basket of currencies used by major trading partners, the pound is now at a 12-year low.

Sterling has fallen sharply over the past month - in mid-July one pound bought two dollars - as fears increased the UK was heading for a recession.

At the same time, the dollar has been helped by a fall in the price oil.

Difficult outlook

The US currency has been gaining ground in recent weeks and on Tuesday the euro fell to a seven-month low versus the dollar, dipping below $1.45.


Falling oil prices, which hit a five-month low on Tuesday, have been a factor behind the dollar's rally.

Investors had bought commodities to protect against the dollar's weakness earlier this year but are now unwinding those positions - to the US currency's benefit.

Analysts also said the dollar was strengthening because the US economic outlook appeared better than the deteriorating picture in the UK and the eurozone economies.

"It is difficult to see an improvement in sentiment in the UK in the very near term," said analysts at Barclays Capital.

Gloomy comments over the weekend from UK Chancellor Alistair Darling, who warned that Britain was facing its toughest economic challenge for 60 years, triggered sterling's plunge on Monday.

Weak mortgage approval data added to the dark mood.

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