Pound grows in strength, smashing through $1.94 level

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The Independent Online

Sterling powered through another key threshold yesterday, rattling exporters and putting the pound on track to hit two dollars within weeks.

Sterling powered through another key threshold yesterday, rattling exporters and putting the pound on track to hit two dollars within weeks.

The pound hit a high of $1.9438 just 24 hours after vaulting the $1.93 mark to reach its highest level since sterling was humiliatingly ejected from the European exchange rate mechanism in 1992.

Kenneth Broux, an economist at Lloyds TSB, said: "If it carries on at this pace we would not rule out two dollars sooner rather than later. It is certainly on the cards."

The pound has surged since Mervyn King, the Governor of the Bank of England, said the economy had accelerated since September.

Mr Broux said: "Interest rates may not have peaked. And while that is on traders' minds, things are going to be positive for sterling."

There was fresh upbeat news yesterday as a survey showed that activity in the construction sector, which makes up 6 per cent of the economy, surged in November. New orders picked up briskly and construction hiring grew at its fastest pace since July 2001, the Chartered Institute of Purchasing and Supply said.

Roy Ayliffe, a director of Cips, said: "Optimism about the sector's future remained high, driven by planned expansion and the anticipation of new demand." The report came a day after it said manufacturing output had hit a four-month high. Earlier in the week the CBI said retail sales had rebounded in November.

But industry fears that a sustained rise by the pound could hit exporters. Ian McCafferty, the chief economist of the CBI who sees a two-dollar pound as a "realistic possibility", said exporters had been hit by the 10 per cent rise in the pound against the dollar. "If you have an export profit margin of 10 per cent then all of that has been wiped out," he said.

The driving factor, however, continued to be the search for a safe haven by investors selling the dollar because of fears that the US current account deficit is unsustainable.

The dollar plunged to a life-time low against the euro for the fifth time this week, hitting a record $1.3385 in overnight trading. Gold also benefited from the rout in the dollar, setting a new multi-year high near $457 an ounce.

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