Sterling rose against the dollar on Thursday on a wave of dollar selling that pushed it to historic lows against many currencies on the view the Federal Reserve's recent actions to ease market strains won't work.

But the pound remained anchored near all-time lows against the euro which, along with the yen and Swiss franc, emerged as the biggest gainer against the dollar.

The greenback sank to new lows against the euro, Swiss franc and a basket of currencies, and fell below 100 yen for the first time in 12 years amid the deepening gloom surrounding the health of the financial system and U.S. economy.

With attention very much on the dollar's slide, sterling played a secondary role in currency trading activity, with dealers completely shrugging off the first budget from U.K. finance minister Alistair Darling on Wednesday.

"In the battle of the ugly currencies, sterling has been beaten into first place by the dollar," said Neil Mellor, currency strategist at Bank of New York Mellon.

"There's very little going for sterling right now and that's been reflected in euro/sterling, but cable (sterling/dollar) will continue to go higher as long as we keep getting this negative newsflow drip on the credit side from the United States," he added.

At 1615 GMT the pound was up 0.2 percent on the day at $2.0310, having traded as high as $2.0391 earlier on Thursday, while the euro was flat at 76.70 pence.

Mellor at BoNY Mellon said the euro is headed for the mid-80 pence area some time soon as the credit crunch starts to take its toll on the U.K. housing market and broader economy.

But not everyone agrees.

"The Bank of England is not going to cut rates any time soon -- they want to cut but can't," said a trader in London, referring to sticky inflation.

"They might cut to 5 percent (from 5.25 percent), but that's it. I see no reason why we can't revisit the $2.11s soon," he said, referring to the pound's 26-year high struck in November last year.

In his budget, Darling said inflation would likely rise in the near term, while a BoE survey on Thursday showed Britons' inflation expectations rose to a record 3.3 percent in February.

That's more than a percentage point above the current rate of inflation and more than a point above the central bank's preferred target of 2 percent.

Source Supplied by Reuters.