The sterling ended the day significantly down against all the other major currencies following the BoE's quarterly inflation report.

GBP

The sterling dropped to a four-year low versus the euro and also lost ground against the dollar, after BoE's Governor Mervyn King signalled interest rates would need to be cut and forecasted a worsening outlook for both inflation and economic growth. The quarterly inflation report showed inflation hitting its two per cent target in two years time if rates move in line with market expectations, which implied a cut of 0.25 per cent in the first quarter and another in the second half of 2008.

USD

The dollar fell versus the euro on continued fears that a struggling US housing sector and lingering credit problems could hurt the broader economy. No data released has done enough to dispel the sense of gloom surrounding medium term growth prospects in the US, and investors remained concerned that there is still more bad news to come from the deteriorating housing market and resultant credit crunch.

EUR

The euro was supported by robust GDP data, which showed the euro-zone economy recovered in the Q3, expanding at a faster than expected rate and increasing the likelihood that the ECB will keep the region's interest rate at four per cent for some time to come.

JPY

The yen also made significant gains against the pound following Mr King's suggestion on UK interest rates. However, the yen's rise had more to do with weakness in the pound than any underlying strength in the currency, and the yen is still relatively weak across the exchanges.