Page last updated at 17:40 GMT, Thursday, 18 December 2008

Dollar and sterling slide further


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

The dollar fell to $1.423 against the euro after the Federal Reserve slashed rates to between zero and 0.25%.

The pound also hit a new record low against the euro of 1.057 euros on the expectation of further cuts in interest rates by the Bank of England.

And some branches of the Travelex money exchange at Heathrow airport were offering less than 1 euro for 1.

Branches at Terminals 1, 2 and 5 are offering travellers a rate of 0.9998 euros to the pound.

The commercial rate offered at foreign exchanges is almost always lower than that used in financial markets.

Weakness expected

In other currency movements, the pound has also weakened against the dollar, falling by almost 4 cents to $1.505.

And the yen fell against the dollar after the Japanese government said it might intervene to weaken the currency.

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.

Larger cuts

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 reported on Friday 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 next year.

Meanwhile, in Japan, Finance Minister Shoichi Nakagawa has announced that the government will take "necessary steps" to limit the yen's advance against the dollar, which has hit 13-year highs in recent days.

Japanese exporters have been particularly hit hard by the strong yen.

"We're seeing increasing speculation that intervention is imminent," said Luke Hardman at Bank of Tokyo-Mitsubishi.

Interest rate cuts make currencies less attractive, as they reduce the rate of return for investors.

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