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Sterling Falls on Rate Cut Hopes

Sterling Falls on Rate Cut Hopes

The minutes from the latest meeting of the Bank of England's interest rate setting committee showed two members voting for an immediate cut.

Lower interest rates mean that the pound becomes a less attractive investment, causing investors to switch to other currencies.

The pound fell to $1.9987, down from $2.0253 the day before.

Against the euro, the pound fell to 1.2698 euros after the Bank of England minutes were released, down from 1.2818 on Tuesday.

"The minutes confirmed an easing psychology from the MPC," Audrey Childe-Freeman, European economist at CIBC World Markets said.

"And softer than expected labour market figures reopen the case for a cut in rates as early as April, which is why sterling has fallen," she said.

At about 1030 GMT, sterling had strengthened again slightly, trading at above $2.0026 to the pound and at 1.2716 euros.

Sterling Tarred'

The dollar has been steadily weakening against European currencies because of concerns about the US economy.

Initially that also applied to the pound, and the dollar fell in value by a third against the pound in the last five months.

But recently, the slowing UK housing market and problems in the financial markets have heightened concerns about the prospects for the UK economy, and this is causing the pound to weaken against the dollar and the euro.

"The pound is being tarred with the same brush as the dollar," currency strategist Jeremy Stretch said.

"The UK has a very significant financial system of great importance to the overall economy. The system is suffering from great distress," he said.

The decline in sterling is good news for exporters, however, as this makes UK-made goods cheaper for overseas buyers.

"With the prospects for the domestic market uncertain, it is important that firms can continue to attract overseas business. A competitive pound will help enormously," Ian McCafferty, CBI chief economic advisor said.

©  BBC News

Published: 19 March 2008

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