Book your trip soon, was the advice yesterday to shopaholics planning a break in New York for some serious retail therapy.
Currency analysts said that, while sterling could race to $2.05 in the next few weeks, the exchange rate was likely to slide back below two-to-one by June. They said dwindling fears about rising UK interest rates and growing confidence about the US outlook would soon see the pound back-pedaling against the dollar.
"Sterling will remain well supported going into the Bank of England's next interest rate meeting, but if there's a hint that the expected hike is the last for a while, or that the Monetary Policy Committee's work is done, it will start unwinding," said Paul Mackel, currency strategist at HSBC.
"I don't think investors are trying to build long cable (sterling/dollar) positions - it's quite lofty at these levels. We retain our forecast of $1.97 in three months' time."
Paul Bednarczyk, currency strategist at 4Cast, said: "Sterling could go to $2.04 or $2.05 over the next month or so, but by then it will be looking a bit overblown.
"By the end of the year, people will be talking about when interest rates are going to come down again, which will undermine the pound."
Sterling yesterday hit $2.0133, its highest since June 1981 when the currency was starting its long slide towards near-parity with the dollar. Its latest ascent took gains for the year against the greenback to an impressive 2.7 per cent, although it is weaker against the euro than it was in January.
Expectations of higher interest rates are boosting the pound, with foreign investors piling into sterling assets in the hunt for yield. Although currently identical at 5.25 per cent, UK rates will rise while those in the US will probably fall to give America's floundering economy a boost. The rising yield has also lured central banks looking to shift their swelling foreign exchange reserves out of dollars. As well as offering a decent return, sterling is seen as a safe bet for central banks because of its liquidity.
There are winners and losers from a $2 pound. UK tourists going to the US and other dollar-linked destinations will benefit, as will consumers buying American or Chinese goods.
However, exporters to the US will find their competitiveness impaired. There is some good news for UK companies, however, given that oil, metals and many other raw materials are typically quoted in dollars.Reuse content