LONDON (MarketWatch) -- The British pound was unable to maintain a rebound versus the euro Thursday, notching yet another record low against the European single currency on concerns the United Kingdom will be especially hard hit by the global economic downturn.
The euro pulled back in early action after setting a record high versus sterling near 88.20 pence late Wednesday. But the euro soon returned to the plus side, and was last seen near 88.64 pence after trading as high as 88.95 pence, according to FactSet.
Recent weakness has prompted talk the pound could trade at parity to the euro.
Kenneth Broux, an economist at Lloyds TSB, said such a move is unlikely. The pound has reached significantly oversold technical levels versus the euro and is likely to see a near-term bounce back toward 85 pence, he said.
Over the longer term, however, aggressive stimulus measures by the British government and expectations the Bank of England will cut interest rates next year to their lowest level in its 300-year-plus history could keep pressure on sterling, he said.
The U.S. dollar, meanwhile, remained under pressure against major currencies Thursday, bearing the brunt of a revival in risk appetite that's stemmed a wave of greenback repatriation, analysts said.
The passage of a $14 billion federal loan package for the auto industry by the U.S. House of Representatives Wednesday contributed to optimism, although the legislation is expected to face a tougher battle in the U.S. Senate. See full story.
"Fear that the Republicans would prevent the U.S. auto bailout bill from being passed in the Senate has kept Asian equity markets nervous. However, we expect this to have little impact on the currency side," wrote strategists at BNP Paribas.
They said the euro's successful push through resistance at $1.3090 versus the dollar sets the stage for a test of the next key level at $1.3260. The British pound's push through $1.4950 against the greenback puts the focus on the $1.51 level.
Broux noted a "big debate" in the markets regarding whether the dollar is under pressure from "a squeeze and illiquid conditions or whether this is a trend reversal where risk appetite is coming back."
Broux said he's hesitant to declare an end to dollar strength.
"I suspect we could well see equities come off again in January," boosting the greenback, he said.
The dollar index , a measure of the greenback against a trade-weighted basket of six currencies, slipped to 84.269 from 85.480 in North American activity late Wednesday.
The euro rose to $1.3212 versus the dollar, up from $1.3016. The British pound jumped to $1.4899, up from $1.4788.
The dollar fell versus the Japanese yen, dropping to 91.30 yen from 92.59 yen late Wednesday.
The Swiss franc was mixed following the Swiss National Bank's decision early Thursday to cut its key interest-rate target range by a further 50 basis points. The SNB lowered the range to 0% to 1%, with a midrange at 0.5%. See full story.
The move marked the fourth rate cut since October, when the mid-range stood at 2.75%. Thursday's move was in line with expectations.
The dollar remained under pressure versus the Swiss currency, falling 0.6% to 1.1906 francs. The euro rose 0.8% to 1.5728 francs.
The biggest news on the monetary-policy front, however, came out of South Korea, where the central bank cut its key rate by a larger-than-expected full percentage point.
The Bank of Korea dropped its base rate to 3% from 4%, citing rapidly slowing economic growth and vowing to do "what is needed to improve liquidity conditions and to ward off the risk of a severe slowdown in economic activity."
The won strengthened against the dollar and the euro after the move, changing hands at 1,393.1 against the dollar and 1,788.4 versus the euro.
"The atypical measure by the Bank of Korea shows that Asian officials are keen to pull out all the stops to support domestic economies," the BNP Paribas strategists said. The Korean currency's "strength on the back of the announcement clarifies that the market is not trading on rate differentials but on growth prospects."
