The sterling declines as the economic slump continues

The pound fell against the euro for a second day on speculation a report on U.K. construction will fuel the Bank of England’s need to cut interest rates. The British currency was also little changed versus the dollar before economic surveys this week that may show house prices, consumer confidence and manufacturing production fell while factories raised prices at the slowest pace in at least a year. The Bank of England will cut its benchmark rate by 50 basis points to an unprecedented low of 1 percent on Feb. 5, according to economists and traders.
“The pound is still under a lot of pressure,” said Ian Stannard, a currency strategist in London at BNP Paribas SA. “The economic outlook is not supportive of the currency.” The GBP/USD is currently trading at $1.4175 as of 10:20am, GMT.

The Australian dollar gained after the central bank cut borrowing costs to the lowest since 1964 and the government announced a stimulus package to avoid a recession. The Australian dollar ended three days of losses as the government said it will $26.7 billion on grants and infrastructure to counter the impact of the global financial crisis. The combination of fiscal and monetary stimulus “is going to be a positive for the currency,” said David Forrester, a currency economist at Barclays Capital in Singapore. “I wouldn’t be surprised to get above 64 U.S. cents against the dollar but meet resistance there.” The AUD/USD is currently trading at 0.6345 as of 10:40am, GMT.

The euro fell against the dollar before a report that may show European producer prices fell for a fifth month, giving the region’s central bank more room to cut interest rates. European Central Bank President Jean-Claude Trichet reiterated in an interview on Bloomberg Television at the World Economic Forum in Davos, Switzerland, last week that the central bank’s next important meeting is in March, signaling policy makers will keep the rate unchanged at 2 percent on Feb. 5. “Our economists still expect the next policy rate cut to come in March but the dropping inflation data and the worsening economy raise the possibility of a cut in February,” London- based UBS AG analyst Geoffrey Yu wrote in a note to clients. “We prefer to be short euros.” The EUR/USD is currently trading at $1.2825 as of 10:50am, GMT.

Today's Economic Events