Dollar jumps as sterling takes a beating

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The dollar jumped yesterday, climbing above DM1.48 to reach its highest level against the German currency for four months, writes Diane Coyle.

The pound fell sharply, losing more than a cent in value against the dollar.

It declined to $1.5105 from the previous close of $1.5230 in the aftermath of Thursday's surprise base rate cut.

Sterling suffered from the Bank of England's silence about the interest rate move, which dealers took to suggest that monetary policy had fallen victim to politics.

The dollar gained in strength in anticipation of today's meeting of G7 ministers and central bank governors in Paris.

It received a further boost from figures that suggested that the economy remained on course for a soft landing. A modest upward revision to GDP in the third quarter and a bigger-than-expected rise in employment last month dented hopes that the US Federal Reserve would cut interest rates as early as the end of this month.

Shares on Wall Street also showed big gains yesterday for the second session in a row. The Dow Jones industrial average ended 60 points higher at 5,184.6

Recent figures suggesting the German economy is slowing more sharply than expected have raised hopes the Bundesbank will cut interest rates before long. The G7 meeting is expected to welcome the dollar's strength against the mark.

Some currency dealers believe the industrial countries might co-operate to send the dollar higher - leaving it open to a setback next week if there is no official communique.