Pound suffers a fresh battering but shares soar

The pound was battered down to its lowest level for more than a month on the foreign exchange markets yesterday.

But the stock market took heart from the exchange rate weakness, with the FTSE 100 index ending more than 47 points higher at a record 4,275.8.

Sterling's index against a range of currencies closed 0.8 points lower at 94.4. It has lost more than two pfennigs against the German mark in 24 hours.

Dealers blamed the pound's renewed decline on a combination of expectations that Kenneth Clarke, Chancellor of the Exchequer, will not raise base rates after the monthly monetary meeting on Wednesday and fears that the Federal Reserve might increase US rates after its Open Market Committee meets on Tuesday and Wednesday. These were fuelled by figures yesterday showing that the American economy grew at a steamy pace in the final quarter of last year.

"The pound's higher level was buoyed by speculative inflows. That hot money is now going elsewhere," said Paul Lambert, a currency analyst at the investment bank UBS. He added that the Toyota president Hiroshi Okuda's warning earlier this week about future investment in Britain if the pound stayed out of the single currency had also led to sales of the pound for yen.

The paradox in sterling's very recent weakness is that if it goes much further it will deprive the Chancellor of his best excuse for not taking Bank of England advice to increase the cost of borrowing. The Bank's Governor, Eddie George, has become increasingly forthright in saying this is needed if inflation is to hit the Government's 2.5 per cent target.

The sterling index ended yesterday less than 4 per cent above its level when the Bank drew up its last quarterly Inflation Report, when it started arguing for rates to go up. The next report is due on 12 February.

David Coleman, chief economist at CIBC Wood Gundy in London, warned that Mr Clarke's resistance might suit his electoral needs but held dangers for sterling. "Once the market thinks Clarke is behind the game, the game is up," he said.

Figures yesterday showed America's GDP growth rebounded in the final quarter of last year. This tilted Wall Street analysts towards the view that Alan Greenspan, Fed Chairman, will favour a tighter interest rate policy, even though most believe an erratically strong trade performance boosted the economy at the end of last year.

The US economy expanded at an annual rate of 4.7 per cent in the fourth quarter of 1996, a much faster pace than economists had expected. Consumer spending picked up strongly. In addition, exports surged while growth in imports slowed down.

Start your day with The Independent, sign up for daily news emails
Sport
Seth Rollins cashes in his Money in the Bank contract to win the WWE World Heavyweight Championship
WWERollins win the WWE World Heavyweight title in one of the greatest WrestleMania's ever seen
Arts and Entertainment
Louis Theroux: By Reason of Insanity takes him behind the bars again
tvBy Reason of Insanity, TV review
Arts and Entertainment
Cassetteboy's latest video is called Emperor's New Clothes rap
videoThe political parody genius duo strike again with new video
Arts and Entertainment
tvPoldark, TV review
ebooks
ebooksA special investigation by Andy McSmith
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Retirement Coordinator - Financial Services

Negotiable: Recruitment Genius: To provide a prompt, friendly and efficient se...

Recruitment Genius: Annuities / Pensions Administrator

Negotiable: Recruitment Genius: You will be the first point of contact for all...

Ashdown Group: HR, Payroll & Benefits Officer - Altrincham - up to £24,000.

£18000 - £24000 per annum + benefits: Ashdown Group: HR, Payroll & Benefits Of...

Ashdown Group: Learning and Development Programme Manager

£35000 - £38000 per annum + benefits : Ashdown Group: A highly successful, int...

Day In a Page

No postcode? No vote

Floating voters

How living on a houseboat meant I didn't officially 'exist'
Louis Theroux's affable Englishman routine begins to wear thin

By Reason of Insanity

Louis Theroux's affable Englishman routine begins to wear thin
Power dressing is back – but no shoulderpads!

Power dressing is back

But banish all thoughts of Eighties shoulderpads
Spanish stone-age cave paintings 'under threat' after being re-opened to the public

Spanish stone-age cave paintings in Altamira 'under threat'

Caves were re-opened to the public
'I was the bookies’ favourite to be first to leave the Cabinet'

Vince Cable interview

'I was the bookies’ favourite to be first to leave the Cabinet'
Election 2015: How many of the Government's coalition agreement promises have been kept?

Promises, promises

But how many coalition agreement pledges have been kept?
The Gaza fisherman who built his own reef - and was shot dead there by an Israeli gunboat

The death of a Gaza fisherman

He built his own reef, and was fatally shot there by an Israeli gunboat
Saudi Arabia's airstrikes in Yemen are fuelling the Gulf's fire

Saudi airstrikes are fuelling the Gulf's fire

Arab intervention in Yemen risks entrenching Sunni-Shia divide and handing a victory to Isis, says Patrick Cockburn
Zayn Malik's departure from One Direction shows the perils of fame in the age of social media

The only direction Zayn could go

We wince at the anguish of One Direction's fans, but Malik's departure shows the perils of fame in the age of social media
Young Magician of the Year 2015: Meet the schoolgirl from Newcastle who has her heart set on being the competition's first female winner

Spells like teen spirit

A 16-year-old from Newcastle has set her heart on being the first female to win Young Magician of the Year. Jonathan Owen meets her
Jonathan Anderson: If fashion is a cycle, this young man knows just how to ride it

If fashion is a cycle, this young man knows just how to ride it

British designer Jonathan Anderson is putting his stamp on venerable house Loewe
Number plates scheme could provide a licence to offend in the land of the free

Licence to offend in the land of the free

Cash-strapped states have hit on a way of making money out of drivers that may be in collision with the First Amendment, says Rupert Cornwell
From farm to fork: Meet the Cornish fishermen, vegetable-growers and butchers causing a stir in London's top restaurants

From farm to fork in Cornwall

One man is bringing together Cornwall's most accomplished growers, fishermen and butchers with London's best chefs to put the finest, freshest produce on the plates of some of the country’s best restaurants
Robert Parker interview: The world's top wine critic on tasting 10,000 bottles a year, absurd drinking notes and New World wannabes

Robert Parker interview

The world's top wine critic on tasting 10,000 bottles a year, absurd drinking notes and New World wannabes
Don't believe the stereotype - or should you?

Don't believe the stereotype - or should you?

We exaggerate regional traits and turn them into jokes - and those on the receiving end are in on it too, says DJ Taylor