Last week we saw the Euro suffer one of its worst declines against a basket of major currencies, especially the US Dollar, falling under even more pressure from global credit jitters. The single currency also lost further ground after the ECB left interest rates on hold at 4.25% last Thursday.

The UK economy is also suffering from the credit fallout with mortgage approvals hitting a record low. The second quarter housing equity withdrawals have contracted for the first time in nearly a decade and the third quarter BoE credit conditions survey reported that the lending environment is likely to worsen in the near future. As a result, last week we saw Bradford & Bingley, the second major British financial firm, being nationalized as a last resort bailout.

Over the weekend, we saw the rescue package for Hypo Real Estate fall short as new liquidity gaps emerged, which led the government to issue guarantees for all bank deposits throughout Germany. Mounting turmoil throughout Europe has become a growing concern as the ECB noted increased downside risks for growth, and went on to say that ‘economic growth is slowing down significantly.’ The comments suggest that the ECB may look to lower the benchmark interest rate at their next meeting, which would only fuel bearish sentiment for the euro in the near-term.

Amid expectations of a rate cut by the ECB, U.K. Chancellor Alistair Darling announced that the government backs the BoE’s neutral policy stance, and went on to say that the government will take the necessary steps to counter the sharp decline in Europe’s second largest economy. The comments suggests that the BoE may have more room to hold the benchmark interest rate steady at 5.00% for the remainder of the year, with the government scheduled to release a new outline on Wednesday to how they will respond to the financial crisis.