Pound hits all-time low vs euro

LONDON (Reuters) - Sterling fell to a fresh low against a resurgent euro on Thursday as weak U.S. data and the killing of Pakistani opposition leader Benazir Bhutto led investors to buy the common European currency.

A generic picture of sterling in coins and bank notes. REUTERS/Catherine Benson

Softer than expected data before the Christmas break and a unanimous vote by the Bank of England’s Monetary Policy Committee to cut interest rates in December have convinced investors that more monetary easing is likely soon.

Sterling, which has the highest interest rates in the Group of Seven industrialised nations, benefits from the carry trade where investors borrow low yielding currencies such as the yen to fund purchases of higher yielding assets in other currencies.

However, investors flee from the relatively risky carry trade when jitters set in, and uncertainty rose sharply after Bhutto’s killing.

“Pakistan is a crucial country in the region and prospects for political uncertainty is leading to some nervousness (which is reflected in) gold, bond and oil prices rising and the dollar dipping,” said Audrey-Childe Freeman, European economist at CIBC World Markets.

Weaker-than-expected U.S. durable goods data saw the dollar fall against the euro and this also dragged the pound lower against the euro, analysts said.

At 3:03 p.m., the euro was up 0.2 percent at 73.16 pence, having touched an all-time high of 73.19 pence.

On a trade-weighted basis the pound was at 98.5, having touched its lowest since April 2006 earlier in the session at 98.4.

The pound was up 0.35 percent versus a broadly weaker dollar at $1.9905.

Trading is likely to remain thin until the new year with no major UK data until manufacturing PMI next Wednesday.

Reporting by Simon Falush; editing by David Stamp