MarketWatch: The euro at 10-years-old

The pound fell to a record low against the euro this morning, nearing parity with sterling as fears about the strength of the British economy gathered pace.

The euro climbed to 87.79p against the pound on the currency markets, building on a previous high of 87.73p. At the same time, sterling hit $1.4765 against the dollar.

The British currency has been steadily weakening in the midst of the economic downturn. Over the past 12 months, sterling has fallen 17.4 per cent against the euro and 27.1 per cent against the dollar.

The National Institute of Economic and Social Research (NIESR), an influential think-tank, predicted today that the economy would shrink by one per cent or more this winter as it emerged that British industry is contracting at the fastest pace since 1991.

The speed at which the economy is shrinking has doubled to at least one per cent in the past three months, from an already severe 0.5 per cent officially reported for the third quarter, according to NIESR.

The UK economy is expected to officially fall into recession in the fourth quarter of this year — the technical definition of a recession is two consecutive quarters of negative growth.

The most recent release of worrying economic data showed that industrial production, which counts for just under a fifth of Britain's GDP, fell by 1.7 per cent in October, the biggest slump since January 2003, official figures show.

One London-based trader said this morning that some traders expected the euro to rise to 93p against the pound.

“Technically, sterling is looking very heavy and the product of that is euro-sterling going higher,” the trader said.

The overall value of sterling against a basket of currencies tumbled last week to 80.4p — its lowest point for 13 years — ahead of the latest interest rate move by the Bank of England, which cut rates to a 50-year low of 2 per cent on Thursday.

The falling interest rate is one factor that has driven investors away from the pound, as returns on cash deposited in the UK shrink, as well as concerns over the outlook for the British economy.

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