The pound has fallen to two-and-half-year low against the US dollar and record low against the euro amid fears about the health of the UK economy.

Sterling fell as low as $1.7850, and was trading at 81.62 pence per euro.

Measured against a basket of currencies used by major trading partners, the pound is now at a 12-year low.

Sterling has fallen sharply over the past month – in mid-July one pound bought two dollars – as fears increased the UK was heading for a recession.

At the same time, the dollar has been helped by a fall in the price oil.

Difficult outlook

The US currency has been gaining ground in recent weeks and on Tuesday the euro fell to a seven-month low versus the dollar, dipping below $1.45.

Falling oil prices, which hit a five-month low on Tuesday, have been a factor behind the dollar’s rally.

Investors had bought commodities to protect against the dollar’s weakness earlier this year but are now unwinding those positions – to the US currency’s benefit.

Analysts also said the dollar was strengthening because the US economic outlook appeared better than the deteriorating picture in the UK and the eurozone economies.

“It is difficult to see an improvement in sentiment in the UK in the very near term,” said analysts at Barclays Capital.

Gloomy comments over the weekend from UK Chancellor Alistair Darling, who warned that Britain was facing its toughest economic challenge for 60 years, triggered sterling’s plunge on Monday.

Weak mortgage approval data added to the dark mood.

News reported by The BBC

The pound has hit its weakest levels against the dollar in more than two years, extending recent losses on fears about the health of the UK economy.

Sterling dropped as low as $1.8405 – its weakest since July 2006 – before recovering to $1.8542 by mid-afternoon in Europe.

Sterling has fallen sharply this month. As recently as mid-July, one pound bought two dollars.

The pound’s losses gathered pace on Friday due to fresh recession fears.

“The growth number confirmed our worst expectations,” said John Hydeskov, senior foreign exchange analyst at Danske bank in Copenhagen.

“We’ve seen that the fall in house prices in the UK seems to have no end. We cannot detect this bottom in house prices that everyone seems to be looking for,” he added.

The euro also fell against the dollar, trading at $1.4708 but above a six-month low of $1.4630 hit last week.

Deteriorating outlook

The US currency has benefited as the economic outlook has darkened in the UK and Europe.

Investment guru Warren Buffett said on Friday that he had no bets against the dollar – underscoring the currency’s strength.

The fall in sterling could help UK exporters whose goods will be cheaper overseas.

But it will hurt holidaymakers who have benefited from a strong pound when travelling to countries which use the dollar.

News reported by The BBC

The pound has fallen against the dollar for an 11th consecutive day – the longest run of losses in 37 years – on worries over the UK economy’s strength.

Sterling touched $1.855 on Friday before rebounding slightly. In mid-July one pound would buy two dollars.

The pound dropped sharply on Wednesday after the Bank of England issued a gloomy assessment of the UK economy.

The dollar continued to strengthen on Friday, hitting a six-month high against the euro.

Analysts said that the evidence that the slowing economy was a global trend, rather than one limited to the US, meant that investors were bailing out of the euro and pound.

“The US was the first economy to hit trouble,” said Tim Clayton, chief strategist at currency advisory consultancy Investica.

“The US is still cheap, it’s still a good holiday, but it’s got a lot more expensive” David Bloom, HSBC

“Now people are realising that the UK has the same problems, if not more so, as the US.”

Measured against a basket of trade-weighted currencies, the pound is now at its weakest level since 1996.

The fall in sterling could help exporters whose goods will be cheaper overseas.

But it will hurt holidaymakers who have benefitted from a strong pound when travelling to countries which use the dollar.

“The US is still cheap, it’s still a good holiday, but it’s got a lot more expensive,” said David Bloom, an analyst at HSBC.

Rate cuts

Earlier this week the Bank of England’s governor Mervyn King gave a downbeat forecast for the UK’s economy, saying growth would be flat for the next year and that inflation could touch 5% before falling.

Economists had thought accelerating inflation would prevent the Bank of England from cutting rates, but the Bank’s suggestion that inflation will begin to ease raised expectations of interest rate cuts and this hit the pound.

Lower interest rates mean investors get lower returns on sterling deposits, which makes the pound less attractive.

Fears about European growth have also helped the dollar bounce back from record lows against the euro.

And the dollar has been rising against most currencies following recent falls in commodity prices. Investors had been buying gold and oil to protect against dollar weakness, but they are now unwinding their positions.

The euro was trading as low $1.4735 on Friday. Earlier this year, the euro was trading at $1.60.

News reported by The BBC

The pound has fallen further against the dollar, hitting its lowest level in almost two years amid fears the UK will fall into recession.

Sterling touched its lowest level since October 2006 at $1.8617 but later bounced back to $1.8736.

Measured against a basket of trade-weighted currencies, the pound is now at its weakest level since 1996.

The pound dropped sharply on Wednesday after the Bank of England issued a gloomy assessment of the UK economy.

The fall in sterling will hurt holidaymakers who have benefitted from a strong pound when travelling overseas- and make it more expensive for people to buy second homes abroad.

However, it could help exporters whose goods will be cheaper overseas.

The Bank’s governor Mervyn King said economic growth would be flat for the next year or so and that inflation would rise to 5% or above before falling.

But with domestic demand weak, a revival of exports could help the economy and limit job losses.

Rate cuts

Economists had thought inflation would prevent the Bank of England from cutting rates, but the Bank’s suggestion that inflation will begin to ease raised expectations of interest rate cuts and this hit the pound.

“We have long argued that sterling has been significantly overvalued in recent years” Jonathan Loynes, Capital Economics

Lower interest rates mean investors get lower returns on sterling deposits, which makes the pound less attractive.

Simon Derrick, currency strategist at Bank of New York Mellon, described the pound’s fall this week a “dramatic collapse” that recalled the aftermath of sterling’s ejection from European Exchange Rate Mechanism (ERM) in 1992.

However, he said the currency’s slide should begin to ease.

“Even within the most ferocious sterling downtrends in the past, significant corrections emerged in the middle of the moves,” he said.

But Jonathan Loynes, chief European economist at Capital Economics, thinks the pound could fall as far as $1.65 by the end of 2009.

“We have long argued that sterling has been significantly overvalued in recent years,” he said.

Deteriorating outlooks

Recent official figures have already shown the UK is struggling with high inflation and faltering growth.

Fears about European growth have also helped the dollar bounce back from record lows.

The US economy is still reeling from the credit crisis but analysts say the deteriorating outlook elsewhere in the world has given the dollar a boost.

Falling commodity prices have also supported the US currency. Investors had bought gold and oil to protect against dollar weakness and are now unwinding their positions.

The euro was trading at $1.4910 on Thursday, slightly above the 6-month low of $1.4815 struck this week. Earlier this year, the euro was trading at $1.60.

The euro has been further undermined by the military conflict in Georgia.

News reported by The BBC