Sterling hits 26-year high against US dollar

Source: Exec Digital USA

Date :30/10/2007 17:04:41

The pound gained momentum rising as $2.066 in early morning trading following expectation of a further US interest rate cut this week and the unlikelihood of a near-term cut in UK interest rates.

Traders said the pound had been strengthened by quotes from Kate Barker of the Bank of England's monetary policy committee, which indicated that UK interest rates are unlikely to be cut this year, following a succession of rate rises over the last twelve months.

In contrast, many analysts expect the Federal Reserve, the US central bank, to cut interest rates by a quarter of a percentage point this week, in an attempt to limit the impact of a housing market slowdown.

The next decision from the Bank of England's interest rate setters is due on 8 November, when they are expected to leave rates unchanged at 5.75 percent.

Gaining strength

The pound – which also gained against the euro - is still some way off the $2.446 mark it reached in November 1980, but some analysts believe it could threaten those levels if economic conditions in the UK and US continue to deviate.

The prospect of higher rates means that currency investors regard the pound as a more attractive asset than the greenback, analysts said.

Although the further downturn of the greenback is positive for British tourist travelling to the US, it makes the reverse trip for Americans much more expensive with the number of visitors from North America falling in the first six months of 2007.

The strong pound is also inconvenient for British firms exporting goods across the Atlantic.

Last week the CBI said that it was hurting the manufacturing industry and warned that factory orders had fallen unexpectedly this month.

October 30 2007