NEW YORK (MarketWatch) -- The European single currency lost ground against the dollar Thursday, while the British pound was slightly higher after the European Central Bank and the Bank of England reduced interest rates.
The dollar index , a measure of the greenback against a trade-weighted basket of six currencies, was slightly higher at 85.376, up from 84.794, even after a government report showed continuing claims for unemployment reached a 25-year high. See Economic Report.
The Bank of England slashed its key interest rate 1.5 percentage points to 3.0%, well more than the half-percentage point cut anticipated by many analysts. See full story.
After declining immediately after the Bank of England's rate decision, sterling recovered to trade at $1.5916, compared to $1.5926 in late North American trade Wednesday.
The Frankfurt-based ECB lowered its key borrowing rate by half a percentage point to 3.25%, as forecast.
The euro subsequently fell to $1.2807 from $1.2948.
ECB President Jean-Claude Trichet said the central bank's Governing Council also discussed a larger rate cut.
"The massive cut by the BoE may ultimately prove positive for the pound, as currency markets begin to factor in the simulative effects of lower U.K. rates," said Boris Schlossberg, director of currency research at Global Forex Trading in New York.
Still, the potential for a continued rise in risk aversion amid unsettled financial conditions is likely to leave the euro and the pound under pressure against the dollar, said strategists at Commerzbank.
