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Sterling hovered near a record low against the euro on Friday and hit a 12-year low on a trade-weighted basis after Thursday's shock 150 basis point cut by the Bank of England failed to alleviate fears of a deep UK recession. The UK currency rose against a broadly weaker dollar, which fell on dismal US jobs data, but the pound's outlook remained weak, given that more rate cuts are likely as the UK economy is expected to suffer worst among advanced economies in 2009.
"We are seeing a temporary return to fundamentals, with the dollar falling after the weak numbers," Westpac economist James Shugg said, adding that this was helping to boost sterling. "But going forward I expect to see further sterling weakness against the dollar and the euro because of the view that the UK economy is particularly vulnerable to the current financial crisis," he added.
The euro rallied as high as 81.93 pence, coming within a whisker of 81.95 pence hit last month for the first time since the common currency was launched in 1999. By 1617 GMT, it had reversed those gains to trade 0.1 percent lower at 81.20 pence.
The UK currency also hit a 12-year low on a trade-weighted basis of 84.8 early in the day, before recovering to 85.3. Sterling rose 1 percent against the dollar to $1.5753. A 2 percent rise in European share prices also helped to take the edge off heightened risk aversion, which benefited higher-yielding currencies like sterling and the euro against the dollar and the yen.

Copyright Reuters, 2008

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