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Your support makes all the difference.THE POUND is expected to fall this week as figures on inflation and unemployment confirm the need for even lower rates to kindle growth. The Bank of England cut its benchmark rate to 7.25 per cent on Thursday.
"The pound is on a gentle downward path", and may fall as low as DM2.65 in the next six months, said Jonathan Loynes, a UK economist at HSBC Markets.
"I would expect the data next week to be relatively benign in terms of inflation", allowing the central bank to cut rates again in the months ahead.
On Friday, the pound fell against the dollar to $1.7030 from $1.7270 on Thursday. It rose against the mark to DM2.7830 from DM2.7790.
September's retail price index minus mortgage interest payments - the Government's favoured measure of inflation - is slated for release on Tuesday. Analysts expect the rate to hold at an annual 2.5 per cent from August, staying at the Government's target rate.
July's average earnings, to be published on Wednesday, probably rose 4.67 per cent from a year ago, according to economists' estimates, slowing from a 4.70 per cent annual pace in June.
With inflation subdued, the Bank of England can trim rates even further. Lower rates stimulate economic expansion by making borrowing cheaper, although they also reduce the money-market return on sterling deposits.
Many analysts expect Thursday's rate cut will be the first in a series but it "will not stop the UK moving toward recession", said James McKay, a global markets strategist at Commonwealth Bank of Australia. Mr McKay said rates could fall below 5.5 per cent.
Even with lower rates expected, some economists said they're not recommending their clients sell pounds because investors still get a higher money-market return in the than in Germany or the US.
"Even if the UK cuts rates again, the relative rate differential will still be very large" between the UK and both Germany and the US," said Kirit Shah, international strategist at Sanwa International.
The dollar fell against the yen in its biggest weekly decline since major currencies went off the gold standard in 1971, as hedge funds and other investors sold the US currency to pay back yen loans.
Traders attributed the dollar's 13.6 per cent drop last week largely to hedge funds, which speculate in stocks, bonds and currencies on behalf of wealthy individuals. The funds sold dollars to compensate for losses in other financial markets.
"Hedge funds' unwinding the yen-carry trade hasn't ended yet,'" said Yasufumi Sugiura, foreign exchange manager at Sanwa Bank. "We may see more dollar-selling next week."
Because of the volatility in the market, Sugiura predicted the US currency could swing between Y110 and Y135 in the next week.
The dollar dropped to Y116.92 on Friday in New York. The US currency fell to DM1.6326 from DM1.6403 amid speculation that the US will cut interest rates soon, while Germany keeps its rates on hold.
Signs from Japan and the US that they do not plan to buy dollars to stop its slide also drove the US currency lower.
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