The Euro falls against the pound as UK interest rates have bottomed

The euro fell against sterling below 87 pence on Friday, with the pound seen benefitting from a growing view that UK interest rates are close to their trough compared with the euro zone. The Bank of England cut rates by 50 basis points on Thursday to a historic low of 1.0 percent while the European Central Bank left rates unchanged at 2.0 percent. While the pound also jumped against the dollar, 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 EUR/GBP is currently trading at 0.8750 as of 8:30am, GMT.

The yen rose against the dollar on speculation Japanese exporters bought the currency after it dropped to a one-month low. Japan’s currency also gained versus the euro as Asian stocks declined, spurring investors to trim holdings of higher-yielding assets funded in yen. “There’s talk that exporters are purchasing the yen,” said Akifumi Uchida, deputy general manager in Tokyo at the marketing unit at Sumitomo Trust & Banking Co., Japan’s fifth- largest bank. “They probably compared the yen’s level today to what it was one month ago, and came into the market to buy.” The USD/JPY is currently trading at 91.50 as of 8:40am, GMT.

The Australian dollar fell, reversing a gain, on speculation traders scaled back expectations the U.S. Congress will pass President Barack Obama’s economic stimulus package. The currency snapped a two day advance as a delay in the announcement of U.S. Treasury Secretary Timothy Geithner’s bank rescue-plans also damped demand for higher-yielding assets. Japanese machinery orders declined for a third month, increasing the odds of a prolonged recession in one of Australia’s biggest trading partners. “The market is taking back some gains on concerns that it may have gotten ahead of itself over the U.S. stimulus package,” said David Forrester, currency economist at Barclays Capital in Singapore. “The market is also a little nervous over the delay in Geithner’s bank rescue measure announcement.” The AUD/USD is currently trading at 0.6695 as of 8:50am, GMT.

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