The dollar’s year end recovery extended into Wednesday trading, pushing the British pound beneath the psychologically key 2-level for the first time since mid-September. With no economic reports released from the US today, traders focused on prospects that the Bank of England may cut interest rates again in January.

Richmond Fed President Lacker expressed his uneasiness with the current inflation outlook, which he deems to have deteriorated since August. He said that if energy prices fail to decline, monetary policy decisions next year will be very difficult. However, Lacker said that most cogent risks to growth are on the downside, but expects pickup in 2008. He anticipates very weak growth over the coming months, expecting 2008 GDP growth of 2-2.25%.