FOREX-Dollar falls broadly, sterling sinks

Mon Dec 29, 2008 9:05am GMT

* Dollar falls broadly on gloomy U.S. outlook

* Sterling hits fresh record low vs euro, basket

* Swiss franc rises on geopolitical risks

(Updates throughout; changes dateline prvs TOKYO)

By Tamawa Desai

LONDON, Dec 29 (Reuters) - The dollar fell broadly on Monday, hobbled by a grim outlook for the U.S. economy and the Federal Reserve pouring liquidity into the banking system.

The Swiss franc gained on geopolitical risks as Israeli warplanes pounded the Hamas-ruled Gaza Strip for a third consecutive day. [ID:LT345484]

And sterling continued its downtrend, hitting a record low against the euro and a basket of currencies in early London trade, as economic gloom and expectations that UK interest rates will fall well below those in the euro zone continued to weigh.

"We're seeing a broader trend of dollar weakness as the effects of the additional easing by the Federal Reserve's quantitative easing means ... it is inconsistent with a stronger currency," said David Powell, currency strategist at Bank of America in London.

By 0840 GMT, the dollar had fallen 1.3 percent against the euro to $1.4248 and by 1.2 percent against the Swiss franc to 1.0555 francs .

Against the yen, the dollar was down 0.2 percent at 90.43 yen .

Some market participants noted caution about potential speculative moves in light trade.

"You need to be careful, or you could end up falling into a hole," said an analyst for a Japanese foreign exchange broker.

STERLING BATTERED

The pound tumbled to an all-time low of 96.98 pence , as dealers eyed parity that would be a first since the single European currency's launch in 1999.

Trade-weighted sterling <=GBP> fell to 74.7, the lowest on daily records kept by the Bank of England which date back to 1990.

"Retail sales figures will be closely watched over the coming weeks as the economy hopes to receive a boost from holiday-season sales," said Geoffrey Yu, analyst at UBS in a research note.

"Nevertheless, anecdotal reports continue to suggest limited gains, while other areas of the real economy will continue to see strong challenges."

British interest rates now stand at 2.0 percent compared with key euro zone rates at 2.5 percent, with UK rates expected to be cut further early next year. (Additional reporting by Masayuki Kitano in Tokyo)