Euro dips below $1.25

11/11/08

FRANKFURT, Germany (AP) — The euro drifted below $1.25 on Wednesday, dragged down by worldwide economic gloom and falling equity markets, before staging a slight recovery.

The 15-nation currency dropped to $1.2481, a level last seen in October 2006, before recovering to $1.2578 in European morning trading. That compared with its level of $1.2531 in New York late Tuesday.

The British pound slipped to $1.5392 from $1.5401, while the dollar edged up to 97.80 Japanese yen from 97.68 yen.

"Falling equity markets and global economic gloom mean traders are continuing to favor the greenback as a currency of choice," said analyst James Hughes of CMC Markets in London.

He said the pound could face pressure from economic reports due later Wednesday: the Bank of England's quarterly inflation report and new unemployment figures. Both could have a bearing on the bank's interest rate course.

"Clearly, monetary policy remains in focus so anything that points toward yet more cuts at the start of next month will have the potential to heap yet more pressure on the pound" and send it lower, he said.

Last week the Bank of England lowered its interest rate to 3 percent, a 50-year low. The European Central Bank cut its rate to 3.25 percent.

Lower interest rates can help prompt economic activity, but also typically drive investors away from a currency as they seek higher returns elsewhere.

Courtesy: pounds-euros-dollars | associatedpress | guardianuk