Wednesday January 21, 2009 - 12:33:41 GMT
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Reuters - www.reuters.com
FOREX NEWS-Dollar climb knocks pound to 7-1/2-yr low, euro weaker
* Sterling hits 7-1/2-year low vs dollar on UK banking woes
* Euro/dollar hits 6-week low
* Stocks slide keeps risk aversion high, boosting dollar
(Adds comment, updates prices)
By Naomi Tajitsu
LONDON, Jan 21 (Reuters) - Sterling tumbled on Wednesday,
hitting a 7-1/2-year low against the dollar, as intensified risk
aversion drove investors back into the U.S. currency which
reached its strongest levels against the euro in six weeks.
The pound extended deep losses on the view that an ailing UK
financial sector will keep the economy weak despite bank
bailouts, fiscal stimulus and drastic interest rate cuts. A
surge in UK joblessness also kept sterling weak.
Economic worries around the world stung global stock markets
and sliding European shares kept pressure high to dump risky
assets, boosting the dollar and the yen.
"There's a lot of jitters in the financial markets, and it's
taking its toll on currencies which have stressed capital
financing needs and which are particularly exposed to financial
sector weakness," said Phyllis Papadavid, currency strategist at
Societe Generale in London.
She added that this had put sterling in the firing line, and
that the euro would also continue to suffer.
Sterling was hit as UK banking shares took a beating on the
view that the British financial sector continues to deteriorate
despite the government's latest bank rescue plan, putting the
broader economy in deep trouble.
Bank of England Governor Mervyn King said on Tuesday that
the UK economy will likely shrink significantly in the first
half of the year, and that policymakers need to consider using
more than just interest rates to stimulate demand.
Economic worries were not confined to the UK, however.
European shares .FTEU3 fell 1.7 percent and edged towards
their lowest in nearly six years, reminding investors that the
global economy is continuing to suffer despite dramatic rate
cuts and fiscal stimulus plans by authorities around the world.
Sterling <GBP=D4> fell more than 1 percent to $1.3715, its
weakest since mid-2001. The pair has fallen more than 7 percent
so far this week, its biggest weekly slide since late October.
Sterling dropped across the board, hitting a record low of
123.01 yen <GBPJPY=R> against the low-yielding Japanese yen,
which tends to rally during periods of risk aversion.
The euro <EURGBP=D4> rose more than 1 percent to 94.10
pence, its strongest since the start of the month and inched
closer to a record high around 98 pence hit last month.
Despite the euro's gains against sterling, the single
currency <EUR=> fell to $1.2845 on electronic trading platform
EBS, its lowest level since Dec. 9.
This boosted the dollar across the board, pushing the U.S.
currency .DXY as high as 86.504 against a basket of
currencies, its highest level since early December.
Against the yen, the dollar <JPY=> was little changed at
"It's still a positive environment for the dollar, with
equities down. The dollar and the yen are still strong in this
risk-averse environment," said Marcus Hettinger, global currency
strategist at Credit Suisse in Zurich.
"With other central banks cutting rates down to the level of
the U.S. and Japanese central banks, there's still more downside
for currencies like sterling and the euro."
UK DATA, BOE MINUTES
Keeping sterling out of favour were figures on Wednesday
showing that the UK claimant count jumped by 77,900, the 11th
straight month of rises, while a broad measure of unemployment
rose to 6.1 percent from 6.0 percent, its highest since the
three months to April 1999. [ID:nONS004013]
Minutes from the BoE's monetary policy meeting earlier this
month showed that one member voted to cut rates by 100 basis
points, before the central bank ultimately decided to cut by 50
basis points to 1.5 percent. [ID:nLL446707]
The UK currency's latest pummelling was sparked after the
Royal Bank of Scotland announced massive losses on Monday, which
reinforced investor worries about the UK's hobbling financial
The euro has been hurt lately by sovereign debt rating
downgrades to euro zone member nations including Spain, and
deteriorating economic prospects, which analysts say could
hasten monetary easing by the European Central Bank.
Speaking before a committee of the European Parliament, ECB
President Jean-Claude Trichet on Wednesday played down the
threat of deflation, while rebuffing rumours that some euro zone
member would leave the union given the financial crisis.
He added that all global currencies were under pressure.
(Editing by Stephen Nisbet)
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