Page last updated at 21:31 GMT, Wednesday, 7 January 2009

Pound regains ground against euro

Sterling has regained some of the ground it lost against the euro in 2008

The pound has risen to its highest level against the euro for three weeks, ahead of the Bank of England's interest rates announcement on Thursday.

The euro fell 0.5% against the pound to close at 90.1 pence, well below its recent high of 98.04 pence.

"There's been a change in sentiment for sterling," said Neil Jones, at Mizuho Corporate Bank in London.

UK rates are expected to be cut by 0.5 percentage points to 1.5%, their lowest in the Bank of England's history.

Sterling gains

The pound has weakened steadily against the euro ever since last October.

You're seeing a lot of unwinding of a lot of excessive moves that we saw in December against a range of currencies
Paul Robson, RBS

This was because as the Bank of England cut UK interest rates to counter the effects of the economic slowdown, the pound - and sterling-denominated investments - became less attractive to foreign investors.

Just after Christmas the pound almost fell to parity the euro, but since then it has been gaining back some of its lost ground.

"The market is still cutting out short sterling positions and there's fresh corporate-style money from abroad coming into the UK," said Neil Jones.

At the same time, this week the euro itself has been falling against other currencies.

European economic figures have showed that the eurozone economy is weakening, and inflation is easing, which raised prospects that the European Central Bank may cut rates next week.

But with interest rates expected to fall sharply to their lowest in the Bank of England's 315-year history, many currency analysts say there is no feeling of an imminent recovery for the pound.

"It's very hard to love sterling given the continued news flow," said Paul Robson, at RBS.

However, he said that the euro has probably already seen its peak.

"You're seeing a lot of unwinding of a lot of excessive moves that we saw in December against a range of currencies."

"Going forward we don't like the euro much."

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