Sterling rises as the BOE cuts the interest rate to record low

Sterling hit a high versus the euro on Thursday, while the pound also jumped against the dollar after the Bank of England cut borrowing costs to a record low aimed at blunting the impact of a deep recession. BoE policymakers met market expectations, opting to cut British borrowing costs by 50 basis points to 1 percent. By contrast, the European Central Bank kept euro area rates on hold at 2 percent. The single currency struggled because even though the ECB signaled it may resume cutting, the bank also said zero rates were not appropriate at the moment. The BoE said in a statement that inflation was set to fall below its 2 percent target by the second half of 2009 but noted that sterling had continued to depreciate, boosting the cost of imports. The GBP/USD is currently trading at $1.4737 as of 8:37am, GMT.

The U.S. Senate put off a vote on President Barack Obama’s economic stimulus package until at least today after lawmakers failed to agree on how to cut the more than $900 billion package. Senate Majority Leader Harry Reid, facing demands from a bipartisan group of lawmakers for more than $50 billion in cuts, last night postponed work on the plan until today. As he pushed for a vote on the bill, he also said work on it might continue into the weekend. “The answers aren’t here tonight,” Reid said. “I’m optimistic that we can get something done.” He also said, “Everyone’s going to have to give a little.”

The dollar slipped against the yen on Friday in cautious trade before key jobs data that is expected to paint an even bleaker picture of the U.S. labor market. The U.S. currency hit a one-month high against the yen on Thursday on a rally in U.S. shares led by hopes that the government rescue plan for banks might include suspension of a key accounting rule, thawing investors' aversion to risk. But analysts warned the slight recovery in risk appetite probably won't be sustained as the health of the global economy remained severe. “Exporters came in to buy the yen as it reached attractive levels for them,” said Yuji Saito, head of the foreign-exchange group in Tokyo at Societe Generale SA, France’s third-largest bank by market value. “They were waiting for the yen to tumble to levels unseen by them in a while to purchase it.” The USD/JPY is currently trading at 91.30 as of 8:58am, GMT.

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