Euro, pound pummelled by recession fears

Fears of a European recession hammered the euro and the British pound on Wednesday as traders bet on further interest rate cuts in the region to try to stave off a prolonged downturn.
The euro fell to the lowest level for almost two years against the dollar, while the British pound plunged to a five-year trough after Bank of England governor Mervyn King warned that Britain was likely entering a recession.
Dealers said the currencies were being pressured by speculation that European central banks will slash interest rates to promote economic growth in the face of the worst financial crisis in decades.
At about 0420 GMT, the European single currency touched a low of 1.2743 dollars -- the weakest since November 7, 2006. In London morning trading, the euro stood at 1.2897 dollars.
Against the Japanese currency on Wednesday, the dollar fell to 99.24 yen from 100.31 yen late in New York on Tuesday.
"Players are still trying to test how much lower the euro can go after it broke through the 1.3 line so easily," said Yosuke Hosokawa, head of forex at Chuo Mitsui Trust Bank.
The dollar slid below the key 100-yen level as falling stock markets prompted renewed risk aversion among investors. The euro meanwhile sank as low as 128.10 yen, which was last seen April 2004.
"While the global trend is for interest rate cuts, Japanese rates are likely to stay on hold," added Hosokawa.
Major world central banks slashed interest rates in early October in a concerted effort to calm market turmoil. But the Bank of Japan did not participate, saying its benchmark rate was already low enough at 0.5 percent.