Sterling slides to 14-year low against dollar

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The pound tumbled against the dollar yesterday, hitting its lowest level since 1986.

The pound tumbled against the dollar yesterday, hitting its lowest level since 1986.

Sterling extended its recent declines against the US currency to fall as low as $1.4060 in early New York trade.

The pound has now lost more than 14 per cent of its value against the dollar so far this year and is below the lows seen after the UK crashed out of the Exchange Rate Mechanism in 1992. "We should see it continue lower," said one trader.

The dollar made gains across the board, scoring a new lifetime high of $0.86 against the euro. The euro continued to fall despite efforts by European politicians to shore up the beleaguered currency.

Eddie George, the Governor of the Bank of England, closed ranks with colleagues in the eurozone yesterday to give his backing to the euro.

Mr George said the exchange rate was "out of line"with the economic fundamentals. "I think the expectation generally is that the euro will at some point bottom and tend to strengthen because the expected growth in the eurozone is really very encouraging," Mr George said after a meeting of the world's central bankers at the Bank of International Settlements in Switzerland.

But he side-stepped questions on whether the European Central Bank would intervene to support the embattled euro, which also tested lows against the yen and the Swiss franc. He said only that intervention was one tool open to the ECB, but added the weak euro was causing "discomfort".

The euro sank as far as $0.8570, its lowest since the currency launched with a fanfare on 1 January 1999. It also hit a lifetime low of 90.86 against the yen.

The fall was seen as a snub to Europe's political and financial leaders, who on Friday issued a public statement saying the euro would rise in value.

The International Monetary Fund weighed in, saying it was hard to see any reason why the dollar should weaken. In a review of capital market trends, it said: "International portfolio managers see the US as still offering the highest risk returns."

Peter Dixon, an economist at Commerzbank in London, said if the euro fell through $0.85 there would be nothing to stop it hitting $0.80, which would be more than 30 per cent below its launch value. "What we are seeing is a general concerted effort on the part of the central bankers to talk up the euro," Mr Dixon said.

There has been speculation that the G7 group richest nations - the US, UK, Canada, Japan, Germany, France and Italy - will use their annual meeting next week to launch concerted intervention. However, Mr Dixon said he doubted that the weakness of the euro would be at the top of the agenda while the oil price was still so strong.