CURRENCIES : Pound and dollar up to the mark

The pound and the dollar could both climb to new highs against the German mark in the days ahead. After rising steadily last week they paused on Friday, but the conditions appear right for them to break through the resistance they met late in the day.

In the US an employment report showed that 339,000 jobs were added to the economy last month, far more than economists had expected. The robust American economy makes it more likely that the Federal Reserve will raise interest rates soon, if not at the Open Market Committee meeting on 25 March, possibly at the 20 May meeting.

The case for an increase in British rates is not as ironclad as it once was. One reason is the strength of sterling, which is now up almost 5 per cent against the mark since the end of January.

By keeping export prices high, the muscular pound acts as a drag on the economy, making inflation less of a threat - the same purpose served by higher rates. It also makes imports cheaper, pressing domestic businesses to keep prices down.

In any case, if the pound were to weaken enough to revive inflation fears, the chances are that talk of a rate hike would return. And that would cause sterling to start rising again.

More important for the dollar and the pound is the state of the German economy. It is simply not healthy enough for the mark to rally. Although Germany reported last week that fewer people joined the ranks of the jobless in February than expected, the 5,000 who did kept the unemployment rate at 12.2 per cent. Britain's jobless rate, by contrast, is 6.5 per cent, and the US rate is 5.3 per cent.

The Germans themselves see little hope of change. In a survey of 10,000 businessmen, the financial daily Handelsblatt found that nearly a third believed their companies faced economic and financial difficulties.

All of which leaves the dollar and the pound poised to break through the barriers that halted their advance last week: 1.7230 marks to the dollar and 2.778 marks to the pound.

The former is the dollar's high in April 1994 just before it began a slide that wasn't reversed until November 1996, and a key technical level. The latter was sterling's floor rate in the European exchange rate mechanism before the pound was forced out in September 1992 - also a crucial technical level.

"People are worried about taking on the 2.778 level, which is the old ERM floor," said Lee Ferridge, a currency economist at Commerzbank. "Sterling is trading in a volatile range, but the trend is still up and there's no reason to expect a sharp weakening of the pound."

Sterling came close to a breakthrough in overnight trading on Thursday, touching 2.7745 marks before falling back to 2.7498 late on Friday. One reason was weakness against the dollar after the US employment report. The pound slipped to $1.6040 late Friday from $1.6114 on Thursday.

The dollar also neared its breakthrough level, rising to 1.7209 marks on Friday. It stopped short, though, and slipped before rebounding to trade at 1.7188 marks late Friday. "It looks like we will take out that crucial 1.7230 level next week," said Mr Ferridge. Copyright: IOS & Bloomberg

Start your day with The Independent, sign up for daily news emails
PROMOTED VIDEO
Sport
David Silva strokes home his and City's second goal
football
Arts and Entertainment
a clockwork orange, stanley kubrick
film
Extras
The Tesco Hudl2: An exceptional Android tablet that's powerful, well-built and outstanding value
indybest

News
Sarah Silverman (middle) with sister Reform Rabbi Susan Silverman (right) and sister actress Laura Silverman (left) at Jerusalem's Western Wall for feminist Hanuka candle-lighting ceremony
peopleControversial comedian stages pro-equality Hanukkah lighting during a protest at Jerusalem's Wailing Wall
Sport
After another poor series in Sri Lanka, Alastair Cook claimed all players go through a lean period
cricket
Arts and Entertainment
The Bach Choir has been crowned the inaugural winner of Sky Arts’ show The Great Culture Quiz
arts + ents140-year-old choir declared winner of Sky Arts' 'The Great Culture Quiz'
Life and Style
food + drinkAuthor DBC Pierre presents his guide to the morning after
Life and Style
food + drink
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Carlton Senior Appointments: Private Banking Manager - Intl Bank - Los Angeles

$200 - $350 per annum: Carlton Senior Appointments: Managing Producer – Office...

Carlton Senior Appointments: San Fran - Investment Advisor – Ind Advisory Firm

$125 - $225 per annum: Carlton Senior Appointments: San Fran - Investment Advi...

Sheridan Maine: Commercial Finance Manager

Up to £70,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...

Sheridan Maine: Regulatory Reporting Accountant

Up to £65,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...

Day In a Page

Homeless Veterans appeal: 'You look for someone who's an inspiration and try to be like them'

Homeless Veterans appeal

In 2010, Sgt Gary Jamieson stepped on an IED in Afghanistan and lost his legs and an arm. He reveals what, and who, helped him to make a remarkable recovery
Could cannabis oil reverse the effects of cancer?

Could cannabis oil reverse effects of cancer?

As a film following six patients receiving the controversial treatment is released, Kate Hilpern uncovers a very slippery issue
The Interview movie review: You can't see Seth Rogen and James Franco's Kim Jong Un assassination film, but you can read about it here

The Interview movie review

You can't see Seth Rogen and James Franco's Kim Jong Un assassination film, but you can read about it here
Serial mania has propelled podcasts into the cultural mainstream

How podcasts became mainstream

People have consumed gripping armchair investigation Serial with a relish typically reserved for box-set binges
Jesus Christ has become an unlikely pin-up for hipster marketing companies

Jesus Christ has become an unlikely pin-up

Kevin Lee Light, aka "Jesus", is the newest client of creative agency Mother while rival agency Anomaly has launched Sexy Jesus, depicting the Messiah in a series of Athena-style poses
Rosetta space mission voted most important scientific breakthrough of 2014

A memorable year for science – if not for mice

The most important scientific breakthroughs of 2014
Christmas cocktails to make you merry: From eggnog to Brown Betty and Rum Bumpo

Christmas cocktails to make you merry

Mulled wine is an essential seasonal treat. But now drinkers are rediscovering other traditional festive tipples. Angela Clutton raises a glass to Christmas cocktails
5 best activity trackers

Fitness technology: 5 best activity trackers

Up the ante in your regimen and change the habits of a lifetime with this wearable tech
Paul Scholes column: It's a little-known fact, but I have played one of the seven dwarves

Paul Scholes column

It's a little-known fact, but I have played one of the seven dwarves
Fifa's travelling circus once again steals limelight from real stars

Fifa's travelling circus once again steals limelight from real stars

Club World Cup kicked into the long grass by the continued farce surrounding Blatter, Garcia, Russia and Qatar
Frank Warren column: 2014 – boxing is back and winning new fans

Frank Warren: Boxing is back and winning new fans

2014 proves it's now one of sport's biggest hitters again
Jeb Bush vs Hillary Clinton: The power dynamics of the two first families

Jeb Bush vs Hillary Clinton

Karen Tumulty explores the power dynamics of the two first families
Stockholm is rivalling Silicon Valley with a hotbed of technology start-ups

Stockholm is rivalling Silicon Valley

The Swedish capital is home to two of the most popular video games in the world, as well as thousands of technology start-ups worth hundreds of millions of pounds – and it's all happened since 2009
Did Japanese workers really get their symbols mixed up and display Santa on a crucifix?

Crucified Santa: Urban myth refuses to die

The story goes that Japanese store workers created a life-size effigy of a smiling "Father Kurisumasu" attached to a facsimile of Our Lord's final instrument of torture
Jennifer Saunders and Kate Moss join David Walliams on set for TV adaptation of The Boy in the Dress

The Boy in the Dress: On set with the stars

Walliams' story about a boy who goes to school in a dress will be shown this Christmas