Toner News Mobile › Forums › Toner News Main Forums › UK CURRENCY HITS A 26 YEAR US DOLLAR HIGH
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AnonymousInactivePound hits 26-year US dollar high
The UK pound has hit its highest level against the US dollar in 26 years.
The
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.
Many
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
While
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
While
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.” -
AuthorOctober 30, 2007 at 11:51 AM
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