Euro and pound drop against greenback

New York: The euro and sterling fell against the dollar on Thursday after aggressive cuts in benchmark interest rates by the European Central Bank and the Bank of England with expectations of more to come.

ECB President Jean-Claude Trichet lowered euro zone growth expectations for both 2008 and 2009, prompting immediate volatility in the euro.

Trichet was speaking after the European Central Bank cut interest rates by 75 basis points to leave its benchmark rate at 2.5 per cent.

The Bank of England cut its benchmark rate by 100 basis points to 2 per cent, the lowest level since 1951, and said further steps would be required to prevent a credit squeeze tipping Britain's economy into deep recession.

"The ECB saw the data coming out and decided a move of more than 50 basis points would not be unreasonable," said David Watt, senior currency strategist, RBC Capital Markets in Toronto. "There's no reason to think the ECB won't have to cut again."

Early in the New York session, the euro had fallen 0.4 per cent against the dollar to $1.2669 though it was well off the session low, while the pound was down 0.9 per cent to $1.4636.

The pound hit a record low against the euro at 86.95 pence. The yen gained, with the dollar last down 0.8 per cent at 92.66 yen, while the euro fell 1.1 per cent to 117.42 yen.

Worries about world economic health kept investors wary of taking on riskier positions, helping to boost the low-yielding yen broadly.

A surprisingly big 175 basis point cut in Swedish borrowing costs earlier and a large 1.5 percentage point move from the Reserve Bank of New Zealand had already set the tone for aggressive action.

The ECB, seen by some market participants as being behind the curve in lowering borrowing costs to boost growth, went for a bolder than expected cut while the BoE disappointed some investors who had speculated on a move similar to the 150 basis point reduction imposed in November.

Response

"The central banks are responding with considerable verve. They recognise the urgency with which they have to cut rates (and) I don't think this is surprising anybody. If it was any less the markets would have been a bit upset about it," said Mike Lenhoff, chief strategist at Brewin Dolphin in London.

Falling interest rates across the globe take away the yield attraction of currencies whose countries previously had high interest rates, giving further support to the yen and the dollar and weighing on higher-yielding units.

Meanwhile, news on the deteriorating state of econ-omies around the world continued to weigh on market sentiment.

Gold loses its shine

Gold slipped on Thursday, slightly extending losses made on the back of the firmer dollar earlier in the session, as the European Central Bank cut rates by a larger than expected 75 basis points.

A $1-a-barrel dip in oil prices is also pressuring the precious metal, analysts said.

Spot gold slid to $766.00/$768.00 an ounce at 1334 GMT from $772.60 an ounce in New York late on Wednesday.

Gold softened a touch on the news, but expectations of rate cuts prevented a larger reaction.