Two-dollar pound edges ever closer

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The Independent Online

The pound yesterday came within a whisker of its highest level against the dollar since it was ejected from the European exchange rate mechanism 14 years ago.

Sterling continued to gain from the slide in the dollar as better-than-expected growth figures and hawkish comments from Ben Bernanke, the head of the Federal Reserve, did little to allay concerns over the US economy.

The pound rose as high as $1.9545, a fraction below the $1.9550 that it would need to breach to take it to its highest level since September 1992.

"There are a lot more people talking about a two-dollar pound being realistic and we certainly see it on the horizon within the next two to three months," said Adam Cole, senior currency strategist at RBC Capital Markets. The estimate of third-quarter GDP was revised up to 2.2 per cent from a 1.6 per cent estimate issued last month. However, analysts said the increase was driven by inventories and net trade rather than domestic demand.

Mr Cole said the dollar's value would be driven by the timing of the first cut in interest rates by the Federal Reserve. Overnight yesterday Mr Bernanke, its president, struck a hawkish note. "Managing expectations at the point when they have to signal that growth has declined enough to let rates come down is a tough balancing act," he said.

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