Pound declines on Iceland issue

Story link: Pound declines on Iceland issue

The pound weakened Friday on concerns that a dispute between the UK and Iceland over financial assets each nation holds in the other will intensify after UK Prime Minister Gordon Brown threatened to freeze Icelandic assets in the UK.

The argument is over who will compensate UK depositors with money in two Icelandic banks after Iceland’s banking system collapsed this week.

Additionally, the pound was hurt by the possibility that the Bank of England will cut interest rates again soon, after it cut rates this week along with a number of other central banks in an attempt to find a way out of the current financial crisis.

At just after 1 p.m. in New York, the pound traded at 79.31p to the euro while it took $1.6975 to buy a pound.

The yen, on the other hand, strengthened as equities markets saw further declines, sending investors hurrying to exit risky carry trades financed with the Japanese currency.

In early afternoon trade in New York, the yen traded at ¥99.655 to the US dollar while it was at ¥134.1606 to the euro, at ¥65.0846 to the Australian dollar and at ¥59.271 to the New Zealand dollar.

The US dollar lost 5.2 percent to the yen this week, the biggest single-week loss to the Japanese currency in ten years, while the yen gained 7 percent on the euro during the week.

Meanwhile, the euro weakened in relation to the greenback as the dollar traded at $1.3463 to the shared currency on the chance that the European Central Bank will lower interest rates again after this week’s cut, which was the first for the ECB in five years.