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UK pound goes through $2 barrier
BBC
Tuesday April 17, 2007
The pound has moved through the $2 mark for the first time since
1992, as investors bet that interest rates would have to rise further
to slow inflation.
Consumer prices rose by 3.1% in March, the Office for National
Statistics said. The ONS also said that its retail price inflation
rate rose to 4.8%.
For the first time, the Bank of England governor has had to write
a letter explaining why inflation has climbed.
Many economists consider an interest rate rise in May to be a certainty.
The stronger pound has been good news for British visitors to the
US, but has made life more difficult for exporters.
Moving up
The last time the $2-level was breached was just before sterling
dropped out of the Exchange Rate Mechanism in September 1992.
Analysts are now betting that the Bank of England will raise interest
rates when it meets in May in an effort to slow consumer spending
and price growth.
Borrowing costs have been increased three times since August.
The key rate currently stands at 5.25% and is widely expected to go
up to 5.5% at the Bank of England's next meeting on 10 May.
"A May move is a certainty," said Philip Shaw, economist
at Investec.
"It opens up a strong possibility of interest rates rising
beyond 5.5%," he added.
Higher borrowing costs act as a tax on consumers, boosting loan
repayment costs, taking money out of their pockets and slowing the
rate at which they spend and take on extra financing.
Further falls
Analysts said that the outlook for sterling will also depend on
US economic data due later on Tuesday.
David Jones from CMC Markets said, "With US economic data
due later in the session, further dollar downside may be seen in
due course".
It is not only sterling that is strong at the moment. The euro
is at two-year high against the dollar and a record high versus
the Japanese yen.
Many traders said they were surprised that last weekend's Group
of Seven finance ministers meeting in Washington did not make any
comments about the weakness of either the dollar or the yen.
INFOWARS:
BECAUSE THERE'S A WAR ON FOR YOUR MIND
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