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Sterling fell to a record low versus the euro on Thursday after an on-hold decision from the Bank of England did not alter expectations for rate cuts soon, in contrast to a hawkish message from the European Central Bank.
Markets had been pricing in an around 60 percent chance of a BoE cut from the current 5.50 percent, but sterling managed only a brief relief rally on the on-hold decision, quickly reversing gains. An easing in February is now seen as virtually certain, with more likely to come later in the year.
The ECB also left rates on hold, at 4 percent, but the euro rallied broadly after president Jean-Claude Trichet stressed inflation risks and said he was not in neutral mode.
The euro rallied half a percent to a fresh record high of 75.31 pence after briefly dipping as low as 74.64 in the immediate aftermath of BoE's on-hold decision. The pound was steady at $1.9584 by 1509 GMT, in sight of earlier 10-month lows of $1.9542.
Short sterling futures are pricing in nearly 100 basis points worth of UK rate cuts by year-end, while in the euro zone markets are actually pricing in an outside chance of a rate hike this spring.

Copyright Reuters, 2008

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