Page last updated at 19:42 GMT, Friday, 12 December 2008

Pound in fifth day of euro lows

Pound verses the euro

The pound has continued to fall to fresh lows against the euro for a fifth day in a row, while the dollar declined on a US bail-out plan failure.

Sterling fell close to 1.11 euros as investors worried that the British economy would be among the hardest hit by the recession.

In addition, UK interest rates are at their lowest level since 1951, and are lower than those in the eurozone.

The pound fell to 1.1126 euros, before recovering slightly to 1.1156 euros.

As the pound has moved close to parity with the euro, some analysts have raised the possibility of the UK adopting the single European currency.

POUND STERLING v EURO: 12 December 2008
Pound Sterling v Euro intraday chart
*All Times GMT

But the former Bank of England and Financial Services Authority official, David Green, told BBC News that such a move would be premature.

"This is the first real test for the euro: a recession is coming on, we don't know what's going to happen to those parts of the eurozone like Spain or Ireland which have no flexibility of exchange rates and interest rates, " Mr Green said.

"I think that any government would be wise to be cautious for the time being," he added.

Future of carmakers

The dollar also dropped to a 13-year low against the yen as a $14bn (9.4bn) bail-out deal for the US car industry failed to get US Senate support, raising fears of job cuts and a possible industry collapse.

"This has clearly hit risk sentiment hard and helped to fuel yen gains," said Lee Hardman, currency economist at BTM-UFJ.

"The market has been focusing on the drop in dollar/yen below the 90 level, which has raised fears of intervention by the Japanese authorities," he added.

At one point, the dollar fell to 88.10 yen, but later bounced back to above 90 yen.

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