Dollar rallies to new 6-year high versus sterling

The dollar set a fresh 6-year high versus the sterling and rallied back from early losses against the euro on Monday, with traders betting that central bankers across the Atlantic may be forced to further cut interest rates despite recent rhetoric to the contrary.The dollar extended its 2-week uptrend versus the sterling, rising to 1.4455 -- its highest mark since 2002. The sterling has been pounded of late versus other currencies amid evidence that the economic picture for the UK has deteriorated rapidly over the last few months.House prices in the UK declined in 2008 and will further decrease next year amid fears of a prolonged recession, according to a report from property consultant Hometrack.Hometrack said UK house prices on average slid 8.7% in 2008 and may fall another 12% next year. In December alone, house prices slid 0.9%, slower than the 1.1% decrease seen in November.

Average house prices now stand at around 159,900 pounds.Meanwhile, the European Central Bank could lower its key interest rate yet again in the face of ongoing financial turmoil and a global recession that has taken the pressure off inflation risk, ECB Vice-President Lucas Papademos said on Sunday.In an interview with Kathimerini newspaper published on Sunday, the ECB Vice President said that if the inflation risk continues to decline, a lowering of interest rates could be on the horizon.However, Papademos appears to be at odds with other ECB policymakers who have indicated they''d like to see the impact of the existing rate cuts before reducing the interest rate further. ECB President Jean-Claude Trichet hinted in mid-December that borrowing costs may be reduced on January 15th.The dollar was hit hard in early dealing versus the euro Monday, falling to an 11-day low of 1.4358 before snapping back to 1.3990.In economic news, final data confirmed that the French economy escaped recession in the third quarter.According to the INSEE, the second-biggest Eurozone economy expanded 0.1% sequentially in the third quarter, after contracting 0.3% in the previous three months. The growth matched the preliminary estimate released on November 14. Versus the yen, the dollar held its ground, easing to 89.75 before bouncing back to 90.65. The dollar was also little changed in choppy dealing versus the petro-linked loonie, holding in range between 1.2100 and 1.2200 for most of the day.On Tuesday, consumer confidence figures will be released. Also, a key regional manufacturing survey is scheduled to be revealed. The factory sector will remain in focus at the end of the week, when a key report on national manufacturing performance is expected.