The euro fell below $1.28 for the first time since November 2006
and the pound tumbled to a five- year low on speculation European
central banks will cut interest rates as the global economy heads for
recession.
The single European currency also slid to the weakest in more than four
years versus the yen as global stocks declined, reducing demand for
higher-yielding assets funded by loans in Japan. The pound declined to
a one-week low versus the euro after Bank of England Governor Mervyn King said the U.K. is probably in a recession.
``People now realize that there is a lot of catch-up to be played by
the European central banks and from a much higher starting point than
in the U.S.,'' said Michael Rosborough, a foreign-exchange strategist
at Citigroup Inc. in London.
Rosborough forecast the euro will fall to $1.26 in a month, with ``a bias to believing it could go lower than that.''
The euro extended losses today on speculation efforts by global
governments and central banks to revive credit markets will fail to
avoid a worldwide recession.
``Expectations for rate cuts in Europe and the U.K. are growing
stronger by the day because of the weak economic outlook,'' said Koji
Fukaya, senior currency strategist at the Tokyo unit of Deutsche Bank
AG, the world's largest currency trader. ``The euro still looks
expensive. Other European currencies are also likely to fall.''
Policy makers voted unanimously to lower the benchmark U.K. interest
rate by a half point to 4.5 percent in an emergency meeting this month,
according to minutes of the Oct. 8 decision released by the Bank of
England today in London. The nine-member Monetary Policy Committee said the economy had ``deteriorated substantially,'' which would slow inflation from more than double the 2 percent target.
Barclays Capital forecast that the bank rate will fall to 3 percent by the fourth quarter of 2009.
The yen also rose against all of the major currencies on speculation a slowing global economy will prompt investors to pare holdings of higher-yielding assets funded in Japan.
EUR/USD in profit taking bounced up to $1.2930, before fell back to
$1.2850.