Sterling today fell to a new low of 98.05p against the euro and a six-year low against the dollar, as the moment when the British currency becomes equal in value to the single currency came closer.

At €1.02, the pound fell further from the 2 cent loss of yesterday. Currency markets continue to assume that sterling will soon reach parity against the euro on the view that the bleak outlook for the British economy will mean more aggressive rate cuts than in the eurozone.

At one stage today, sterling also hit a low of $1.4385 against the US currency, its weakest level since April 2002, but rallied later to $1.4484. Trade-weighted sterling fell to 73.3, the lowest level on daily records held by the Bank of England, which go back to 1990.

The dollar's decline against other currencies came as the Israeli attacks on Hamas in Gaza raised concerns about oil supplies in the Middle East and spurred buying of safe-haven assets, including the Swiss franc.

The euro rose 0.5 per cent against the dollar from late US trading on Monday to $1.4054. The dollar fell 0.4 per cent against the Swiss franc to 1.055 francs, and slipped 0.3 per cent against the yen to 90.29 yen.

The yen has risen 19 per cent against the dollar this year, its biggest annual percentage gain since 1987 when it jumped 23 per cent against the US currency.

The yen rallied as the global credit crunch and worries over a worldwide recession prompted investors to unwind carry trades, whereby low-yielding currencies such as the yen are sold to invest in higher-yielding currencies and assets.

The dollar extended its losses against the yen earlier this month, hitting a more than 13-year low of 87.13 yen after the US Federal Reserve slashed key interest rates to a range of zero to 0.25 per cent.

Traders believe the dollar could fall even further against the yen next year to below its post-Second World War low of 79.75 reached in 1995.

Such a slide in the dollar could prompt yen-selling intervention by Japanese authorities. Although Japan has stayed out of the market since last intervening in March 2004, officials have recently expressed concern over the impact of the yen’s strength, which makes Japanese goods less competitive overseas and hurts Japan’s export-dependent economy.

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