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 user 2007-10-30 at 11:51:00 am Views: 42
  • #19098

    Pound hits 26-year US dollar high
    The UK pound has hit its highest level against the US dollar in 26 years.
    pound has gained on the perception that US interest rates will be cut
    this week and UK interest rates will be left unchanged next week.When
    UK rates are higher than US rates, investors are encouraged to exchange
    dollars for pounds to benefit from better rates of return.The pound
    rose as high as $2.066 in earlier trading, before paring gains slightly
    to $2.064.

    The pound also gained against the euro.
    analysts expect the Federal Reserve, the US central bank, to cut
    interest rates by a quarter of a percentage point on Wednesday, in an
    attempt to limit the impact of a housing market slowdown.The Fed cut
    its main interest rate by half a percentage point to 4.75% last month,
    after problems in the housing market were seen to be spreading to the
    wider economy.House prices have been falling and the number of
    foreclosures has surged in recent months after the Fed raised rates in
    an attempt to slow inflation.

    Recession risks
    inflation has been a problem in previous months, many analysts now say
    that the biggest worry is consumers reining in their spending.Should
    that happen, they argue, the US economy could splutter into a
    recession.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%.The perception that there will be no change has been
    strengthened by comments from one of the rate setters, Kate Barker.In
    an interview with the Guernsey Press and Star, Ms Barker was reported
    to have said: “We are asking ourselves if things are so different from
    August and do we actually have to cut rates?”The pound 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 diverge.James Hughes, a currency strategist from CMC
    Markets, said he believed the market had not yet factored in the
    likelihood of a further cut in US rates.

    Business impact
    the weak dollar is good news for British travellers planning trips to
    the US in the run-up to Christmas, it makes the reverse trip for
    Americans much more expensive.The number of visitors from North America
    fell in the first six months of 2007.The strong pound is also
    inconvenient for British firms exporting goods across the Atlantic.The
    EEF manufacturers’ organisation said the current exchange rate was
    making life “more difficult” for some British companies.But it added:
    “A strong world economy, a shift away from price-sensitive activities
    and the fact that their costs are spread across the globe have
    cushioned UK manufacturers from its worst effect.”