The pound fell to a record low against the euro on Christmas Eve, as dealers forecast further interest rate cuts by the Bank of England in 2008.
One pound would have bought just one euro 37.6 cents in Christmas Eve trading.
"There are increasing signs that the British economy has hit a brick wall triggered by the decline in the housing market," said analysts at BNP Paribas.
Recent comments by Jean-Claude Trichet, the European Central Bank’s (ECB) president had already given a boost to the single curency.
In an interview with the Financial Times, Trichet hinted that the ECB is more worried about inflation than economic growth, and said that interest rate cuts in the US and Britain should not distract the ECB from tightening its monetary policy. "Other colleagues are in a different situation," he said.
Britain's record trade deficit has also pushed down the value of sterling.
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