Sterling rebounded from record lows against the euro on Thursday after the Bank of England left interest rates unchanged at 5.00 percent, as markets expected, but the respite was expected to be short-lived. The significant headwinds facing the economy were reflected in sterling's trade-weighted index, which fell to a 12-year low for a ninth day as sharply slowing growth was expected to result in monetary easing by the end of the year.
The growing economic malaise was highlighted by the Halifax's latest house price survey showed prices fell 12.7 percent on the year in August, the biggest drop since records began in 1983. Analysts attributed part of sterling's positive reaction to the rate verdict was due to some speculation on the chance of a surprise 25 basis point cut.
"There was a bit of risk-reward trading helping sterling, as there were some who thought the BoE might make a move earlier," said Maurice Pomery at IDEAglobal. At 1438 GMT, the euro was down half a percent on the day at 81.19 pence, having earlier hit a record high at 81.86 pence. The pound was down 0.1 percent at $1.7725, but holding off Wednesday's 2-1/2 year low of $1.7664.
Earlier on Thursday, the pound was fixed at a new 12-year low of 88.1 on a trade-weighted basis. It later recovered slightly to 88.4. Sterling also trimmed its losses against the euro after European Central Bank president Jean-Claude Trichet said the eurozone economy was experiencing weak economic activity.
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