THE British pound is expected to be little changed this week, though expectations Thursday's surprise rise in interest rates by the Bank of England is likely to undermine the currency in following weeks.

"There's mounting evidence that the slowdown in the export sector is filtering through to the service sector, which should prevent another rate rise," said Eric Fishwick, an international economist at Nikko Europe.

The pound finished last week lower, at DM2.9015 compared with Monday's opening rate of DM2.9165. It rose as high as DM2.9278 after the rate increase.

The Bank of England raised its benchmark rate by a quarter-point to 7.50 per cent, the highest it's been since November 1992. Mr Fishwick said he expects the pound to hold at about DM2.90 this week, though he sees a decline to DM2.80 by the end of June as the economy slows at the same time as accelerating German growth fuels concern about a German interest rate increase.

The Bank of England cited February's rise in average earnings of 4.9 per cent, as prompting the rate increase. That's more than the economy can sustain without pushing inflation rates up, the central bank said.

"The rise in average earnings was exaggerated by one-off bonuses paid in February," said Keith Edmonds, chief currency analyst at IBJ International. "There's a risk of higher official rates, but I reckon it's about a 33 per cent chance because the underlying trend is for lower wages."

The pound lost ground against the dollar on Friday after the US saw higher than expected jobs growth in May, fuelling concern that the US Federal Reserve Board may raise interest rates when it meets on 1July.

The pound fell to $1.6363 from $1.6402 on Monday.

"We expect one more interest rate hike in the US of 25 basis points, which would lift the dollar to $1.80 against the pound in the days ahead of the meeting," said Michael Lewis, currency strategist at Deutsche Morgan Grenfell.

"We think the pound will fall to 2.85 against the mark over the next month as the German economy picks up steam."

The dollar rose to a seven-year high against the yen, climbing to just shy of Y140. "We're in a Goldilocks economy,'' said Joe Cambria, head of spot trading at Credit Suisse First Boston. "It's not too hot, not too cold. We're still in economic nirvana. We could see the dollar rise to 141 next week."

For the week, the dollar rose 0.65 per cent against the yen. "Traders are going to buy dollars until they're given a reason not to," said Ralph DelZenero, at First Chicago. "There's no reason to hold Japanese assets right now."

Copyright IOS & Bloomberg.

Start your day with The Independent, sign up for daily news emails
ebooksAn unforgettable anthology of contemporary reportage
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

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

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Digital Optimisation Executive - Marketing

£30000 - £35000 per annum: Recruitment Genius: The UK's fastest growing, multi...

Recruitment Genius: Financial Reporting Manager

£70000 - £90000 per annum: Recruitment Genius: A Financial Reporting Manager i...

Recruitment Genius: Payments Operations Assistant

£23000 - £25000 per annum: Recruitment Genius: They win lots of awards for the...

Recruitment Genius: Telephone Debt Negotiator

£13500 - £20000 per annum: Recruitment Genius: This nationwide enforcement com...

Day In a Page

Sepp Blatter resignation: The beginning of Fifa's long road to reform?

Does Blatter's departure mean Fifa will automatically clean up its act?

Don't bet on it, says Tom Peck
Charles Kennedy: The baby of the House who grew into a Lib Dem giant

The baby of the House who grew into a Lib Dem giant

Charles Kennedy was consistently a man of the centre-left, dedicated to social justice, but was also a champion of liberty and an opponent of the nanny-state, says Baroness Williams
Syria civil war: The harrowing testament of a five-year-old victim of this endless conflict

The harrowing testament of a five-year-old victim of Syria's endless civil war

Sahar Qanbar lost her mother and brother as civilians and government soldiers fought side by side after being surrounded by brutal Islamist fighters. Robert Fisk visited her
The future of songwriting: How streaming is changing everything we know about making music

The future of songwriting

How streaming is changing everything we know about making music
William Shemin and Henry Johnson: Jewish and black soldiers receive World War I Medal of Honor amid claims of discrimination

Recognition at long last

Jewish and black soldiers who fought in WWI finally receive medals after claims of discrimination
Beating obesity: The new pacemaker which helps over-eaters

Beating obesity

The new pacemaker which helps over-eaters
9 best women's festival waterproofs

Ready for rain: 9 best women's festival waterproofs

These are the macs to keep your denim dry and your hair frizz-free(ish)
Cycling World Hour Record: Nervous Sir Bradley Wiggins ready for pain as he prepares to go distance

Wiggins worried

Nervous Sir Bradley ready for pain as he prepares to attempt cycling's World Hour Record
Liverpool close in on Milner signing

Liverpool close in on Milner signing

Reds baulk at Christian Benteke £32.5m release clause
On your feet! Spending at least two hours a day standing reduces the risk of heart attacks, cancer and diabetes, according to new research

On your feet!

Spending half the day standing 'reduces risk of heart attacks and cancer'
With scores of surgeries closing, what hope is there for the David Cameron's promise of 5,000 more GPs and a 24/7 NHS?

The big NHS question

Why are there so few new GPs when so many want to study medicine?
Big knickers are back: Thongs ain't what they used to be

Thongs ain't what they used to be

Big knickers are back
Thurston Moore interview

Thurston Moore interview

On living in London, Sonic Youth and musical memoirs
In full bloom

In full bloom

Floral print womenswear
From leading man to Elephant Man, Bradley Cooper is terrific

From leading man to Elephant Man

Bradley Cooper is terrific