The British pound rose on Thursday, after the Bank of England cut interest rates by 50 basis points to 1.5% in a widely expected move.
The decision also "marks a stark departure from the last two cuts of 100 basis points and 150 basis points," said Ashraf Laidi, market strategist at CMC Markets.
The BOE's Monetary Policy Committee last month slashed the key rate a full percentage point to 2%, matching the all-time low for the benchmark since the BOE's founding in 1694. See full story.
But some strategists said the pound's sharp plunge at the end of last year, which temporarily drove sterling to the verge of parity with the euro, likely restrained policy makers somewhat.
Against the dollar, the British pound rose to $1.5273, compared with $1.5034 in morning trade and with $1.5097 late Wednesday. The euro was down slightly against the pound at 90.08 pence.
Still, "with conditions not expected to improve, further [BOE] cuts remain likely in the months ahead," said Benjamin Reitzes, analyst at BMO Capital markets.
The euro rose to $1.3733 against the dollar, from $1.3606.
Jobs depress dollar
The dollar fell against most major counterparts after the market shrugged off a report showing U.S. jobless claims fell in the latest week. On Wednesday, a private-sector survey suggested a steep drop in employment in December.
The dollar index , a measure of the greenback against a trade-weighted index of six major currencies, stood at 81.514, down from 82.332.
The dollar also fell versus the Japanese currency, dipping to 90.99 yen from 92.66 yen Wednesday.
Initial claims for unemployment benefits declined 24,000 to 467,000 in the week ended Jan. 3. Continuing jobless claims, an indication of the difficulty in finding a new job, rose to the highest since November 1982.
Some analysts noted the numbers at this time of year tend to be volatile because claims slow during the holidays.
On Wednesday, the ADP Employment Services report said private companies cut 693,000 jobs in December, almost 50% more than some economists had predicted. See Economic Report on ADP jobs data.
The report came two days before the Labor Department's nonfarm payrolls report for December, which some analysts expect to show an increase in unemployment to 7.1% from 6.7% in November. See Economic Preview on nonfarm payroll report.
The European single currency nudged back toward the day's lows after data showed a sharper-than-expected drop in economic sentiment across the region last month.
The European Commission on Thursday said its economic sentiment indicator for the euro zone fell 7.8 points to 67.1 in December, the lowest reading since the index was launched in 1985.
Consensus expectations were for a decline to 71.3 from 74.9 in November. The commission's industrial and consumer confidence indicators also fell to their lowest levels since 1985, while the services confidence indicator tumbled to its lowest level since the survey was introduced 12 years ago, the commission said.
A stream of deteriorating economic data and falling inflation indicators will increase pressure on the European Central Bank to cut rates when it meets next Thursday, economists said.
That's despite remarks by ECB President Jean-Claude Trichet and other officials that have indicated the central bank would prefer to pause after cuttings its key lending rate by 175 basis points, or 1.75 percentage points, to 2.5% since October.
"Clearly, after today's figures, chances for a 50 basis point move are rising," said Aurelio Maccario, chief euro zone economist at UniCredit MIB in Milan.
"Considering that Trichet himself has been claiming that a pause would have been wise in order to see how recent cuts feed through the real economy, we remain inclined to think that the consensus within the council will coagulate on a 25 basis point move," Maccario said.
