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Sterling drops below $1.50 on economic fears

Thu, Nov 13 2008, 11:19 GMT
by Benny Menashe

Finotec Group Inc.

The British pound dropped, trading below $1.50 for a second day, as evidence accumulated Europe's second-biggest economy is in trouble. The U.K. currency breached $1.50 yesterday for the first time in more than six years. Job vacancies in London's financial- services industry sank 48 percent in October from a year earlier, according to a survey by recruitment firm Morgan McKinley. The Bank of England indicated yesterday it will keep cutting interest rates as the economy slumps. ``Don't rule out the risk of more significant downside beyond $1.40,'' Divyang Shah, chief strategist in London at CBA Europe, a unit of Commonwealth Bank of Australia, wrote in a note yesterday. ``The BOE-inspired fall was an accident waiting to happen.'' The GBP/USD is currently trading at $1.4900 as of 8:42am, GMT.

The euro fell against the dollar after Germany's economy entered its worst recession in at least 12 years, spurring speculation the European Central Bank will cut interest rates. The 15-nation currency also pared gains against the yen after a German government report showed the biggest contraction over two consecutive quarters since 1996. ``Economic data from Europe are weighing on the euro,'' said Tadahiko Nashimoto, director of foreign exchange at Barclays Bank Plc in Tokyo. ``There could be more demand to sell the currency as Europe-based traders enter the market.'' The EUR/USD is currently trading at $1.2507 as of 9:07am, GMT.

The yen will strengthen 6 percent against the U.S. dollar, and the greenback will advance 4 percent against the euro, because of the unwinding of bets on higher- yielding assets, Goldman Sachs Group Inc. said. The dollar will weaken to 90 yen in three months, before gaining to 100 yen six months from now, Goldman said. The greenback will trade at $1.20 per euro in three months, before weakening to $1.30 in six months. The USD/JPY is currently trading at 96.00 as of 9:14am, GMT.

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Published on  Thu, Nov 13 2008, 11:25 GMT