The pound weakened against the euro this morning, moving closer to parity with the single currency as traders increased bets the Bank of England will lower interest rates to revive the ailing UK economy.
At 10.45am sterling was trading at 95.1 pence from 93.00 pence at the end of last week. It dropped from
$1.4920 to $1.471.
The British currency dropped after John Gieve, the central bank's deputy governor, said in an interview with the BBC that policy makers need new instruments to tackle the crisis. Italy's UniCredit SpA said today it remains bearish on the pound "across the board."
The Bank of England has relied too much on interest rates to control the economy, the BBC reported Mr Gieve as saying. Mr Gieve also expressed doubt as to whether the Treasury will get back all the £37 billion it's put into banks, according to the report.
The rate on the March short-sterling interest dropped five basis points to 1.87 per cent today, indicating increased speculation the central bank will keep lowering borrowing costs.
The pound has declined 22 per cent against the euro this year as the Bank of England, led by Governor Mervyn King, reduced its main rate to 2 per cent from 5.5 per cent. It's dropped 25 per cent versus the dollar.
Bloomberg