The sterling dropped suddenly against the euro, hitting a fresh record low as it continues to head towards parity. The economic data, combined with the Bank of England minutes were enough to see the sterling sell-off continue. Elsewhere, Norway's central bank cut its main interest rate by a deeper than expected 175 basis points to three per cent as Norway heads towards recession, like many countries before it.

Sterling

Weak UK economic data and Bank of England comments raised expectations of more aggressive interest rate cuts in the coming months. The minutes of the Bank of England rate-setting meeting for December revealed a unanimous decision to cut interest rates by one per cent and the nine policy makers even discussed the possibility of a larger rate cut.

US Dollar

The US dollar edged up from a two-and-a-half-month low against the euro and a 13-year low against the Japanese yen as markets reacted to the news that US interest rates have fallen to a record low. The US Federal Reserve cut its key interest rate, to a target range of zero to 0.25 per cent, down from one per cent at the conclusion of their policy meeting.

Euro

The euro has eased against the dollar, although interest rate differentials remain. Like the UK and the US, the European Central Bank is likely to lower interest rate levels in the near future and ECB Governing Council member Axel Weber said that it would not be a major problem if eurozone interest rates dropped below two per cent.

Japanese Yen

The Bank of Japan is expected to finish a two-day meeting and announce their next move on interest rates. With the recent appreciation of the yen, up to 13-year high versus the dollar, a modest cut is expected and the bank has said it would deal appropriately with the situation which may include intervening in the foreign exchange markets.