Sterling hit a record low against a basket of currencies as expectations for further hefty cuts in UK interest rates underlined the fragile state of the economy. The US dollar fell to a nearly three-month low against the Euro, extending a recent decline after the Federal reserve's big cut in interest rates this week tilted the yield differential in favour of the single eurozone currency.

Sterling

The pound continued to plumb new lows against the euro. Data showed a surprise pick-up in retail sales last month, but this was met with scepticism as there is mounting evidence that the economy is deteriorating and there is also a growing belief that interest rates may have to fall to zero to spur spending.

US Dollar

The dollar gained limited support from the weekly jobless claims figures, which were broadly in line with expectations of 558,000 at 554,000. Manufacturing production was down 7.3 per cent in the year ended November, the biggest drop since 1980, according to Fed data.

Euro

The euro continued to soar against the dollar and the pound as a result of the view that the European Central Bank may not follow down the path of aggressive interest rate cuts along with the Fed and Bank of England. The single currency was in demand; in spite of bleak December data showing business confidence in Germany at its lowest level since 1982.

Japanese Yen

The Bank of Japan cut its key policy rate to 0.10 per cent, the lowest since 2006, when it ended its zero rate policy. The yen briefly dipped against the dollar after the news; still some analysts welcomed the Bank of Japan's decision but claimed the central bank was likely to face pressure to act further.