Rate-easing fears could hit sterling

THE prospect of further cuts in interest rates could trigger a sharp slide in the pound on foreign exchanges, City analysts said today.

Sterling yesterday dived to an eight-week low against the dollar and a three-week low against the euro after the Bank of England's surprise quarter-point cut to 3.5% in the cost of borrowing.

Experts said signs that the Bank is prepared to ease monetary policy further could bring a fresh wave of selling.

Mark Henry at GNI said: 'The minutes of yesterday's meeting will be scrutinised for clues as to whether this was a one-off move in interest rates or whether there will be more cuts. If it looks likely that there will be more, we could see further falls in sterling.'

The pound was today at $1.6330 and 69.30p to the euro after yesterday's troughs of $1.6221 and 69.95p. The single currency was hit by a veiled call by German Chancellor Gerhard Schroder for the European Central Bank to intervene to cut the value of the euro and help European exports.

'I assume the intelligent people in the leadership of the ECB discuss the question every day of whether they have done enough in the context of the euro/dollar exchange rate to maintain the competitiveness of exports from Europe,' he told the Financial Times.